What will I loose if I file Bankruptcy?
This is a common question most clients want to know before they file bankruptcy. The answer to that question depends on what you have and what is it worth. Debtors in bankruptcy, and outside of bankruptcy, are entitled to keep property that is exempt, and creditors are not allowed to seize exempt property. (Of course the IRS has special abilities to take even exempt property).
Each state has the right to determine what property is exempt. Recently, the legislature in the State of Wyoming doubled its allowance of exemptions, significantly expanding the property that its citizens can protect from creditors. An action which was needed for many years.
As of July 2012, each owner of a home can exempt up to $20,000 (before $10,000) in equity of a Wyoming home in which they live. Thus a couple who are both owners of a home can exempt up to $40,000. This exemption includes a movable home whether it has wheels or not.
Tenants by the Entireties
If a husband and wife own property as tenants-by-the-entireties, which means the title to the property indicates that the ownership is as “husband and wife” or specifically states that it is owned as “entireties”, then the property may be protected from the creditors of just one of the spouses. In a Wyoming bankruptcy, entireties property can only be taken to the extent that there are joint debts.
Each person can exempt the following personal property:
- Household articles and food up to $4,000 in current market value.
- Equity in a automobile of up to $5,000
- Bibles, photographs and school books.
- Burial Plots and Funeral Contracts
- Clothing and wedding rings of up to $2,000 per person
- Tools and other items used and kept in carrying out the primary occupation of the person – up to $4,000 in market value.
Insurance and Insurance Products
This is a sticky area, since the cash value in most insurance products can be taken, however, if a debtor is a beneficiary of insurance proceeds, the proceeds might not be able to be seized if the the clause protects the proceeds from creditors. Most disability benefits are exempt, annuity contracts that pay less than $350 per month are exempt. Fraternal society benefits are also exempt. Medical Savings Accounts are also now exempt.
Only property that a debtor has a right to on the date of filing is considered to be property of the bankruptcy. Thus wages and benefits that have not been earned or matured on the date of the bankruptcy, can not be taken by the trustee. Wages due and owing, but unpaid on the date the bankruptcy is filed are exempt up to 75%. Social Security and most disability income is exempt. Most pensions and public benefits are exempt. Earnings of national Guard members are exempt. HOWEVER, other than social security, income that has been received and put into a bank account looses its exempt status. Thus most funds in bank accounts on the date of filing will be lost, even if the source of the money was exempt.
Wyoming Law prohibits the garnishment or attachment of a liquor license. Thus the ownership of a liquor license is probably exempt by law. Wyoming has no wild card exemptions.
What can be taken.
Unless a debtor’s property fits into one of the exemptions set forth above, it could be taken by a Chapter 7 bankruptcy trustee. Personal property that is not exempt and is frequently taken includes jewelry, sporting goods (guns, ski equipment, golf clubs, etc.), livestock and other “luxury items”. In addition trustees can take a portion of any tax refund for the year in which the bankruptcy is filed that represents the portion of the refund that was earned pre-petition. Trustees may also take inheritances that a debtor becomes entitled to within 180 days after the bankruptcy is filed. Trustees also look for payments to creditors shortly before the bankruptcy (called preferences) or transfers by the debtors before the bankruptcy for less than a fair price (fraudulent conveyances).
This page was last updated: October 30, 2012