If you find yourself thinking about bankruptcy because you can’t pay your bills, it doesn’t necessarily mean that you don’t have any assets. There are a lot of people who just don’t have the cash flow to pay the bills and keep the debt collector at bay. If you find yourself in your situation, now is the time to talk to an attorney to protect as many of your assets as you can.What About My House and Car?
The first question we always get in a bankruptcy is, am I going to lose my house? This is closely followed by questions about their vehicles or maybe a camper they own. When you file for bankruptcy, it is unlikely you are going to lose your house or car. The first thing we look to is the bankruptcy exemptions.
If you have a home, the first question is whether it has equity in it. Equity is the value of home when you subtract the amount owed on the note or mortgage. When you file for bankruptcy, you can choose the Federal or State exemptions.
The exemptions in Massachusetts and New Hampshire are generally more favorable than the federal exemptions. You can exempt up to $25,150 for the federal rules, $150,000 under Massachusetts law ($500,000 if there is a declared homestead), and $120,000 per the New Hampshire exemptions.
Assuming you are filing a Chapter 7 petition and there is more equity than those numbers, the bankruptcy trustee is going to try to grab it to pay off your creditors. That is why if a debtor has a lot of equity in their home, we often suggest a Chapter 13 bankruptcy.
Often people will ask, why not just put the home in my spouse’s name or transfer it to a family member? This is a bad idea. The bankruptcy code allows the trustee to unwind a sale of home where it is transferred “fraudulently”.
A fraudulent transfer or conveyance generally occurs within two years of the filing of the petition where the property is sold for less than it is worth and the debtor is insolvent at the time or the property is transferred to an “insider” (someone close to the debtor).What about that car?
We first have to figure out if there is equity in the vehicle. If you have a lease, there is no equity because you do not own the car. If you bought it and have a loan on it, we will need to find out its resale value. There are plenty of websites that you can punch in your make, mode, year, and mileage in to get an idea of the vehicle’s value.
Once we know how much equity is in the vehicle, the same general rules from above apply. Under the federal exemptions, a debtor can claim up to $4,000 for the car. In Massachusetts it is $7,500 ($15,000 if the debtor is disabled or above 60) and $10,000 in New Hampshire.
But what about the lease? Or what about the car loan, it says I have defaulted if I enter into bankruptcy? We will advise clients as to whether keeping the lease is a good idea. Often our clients are hurting because their car lease or loan is too high. If it is, bankruptcy is a good time to get out of that lease or unmanageable car loan. The remaining debt will be forgiven, but the debtor will need to surrender the vehicle to the creditor (usually at a dealership).
If the debtor wants to keep the car that has a loan or lease, we will need to file a reaffirmation agreement. A reaffirmation agreement is a contract between the debtor and the creditor where the debtor and the creditor pay back the debt despite them not being required to after the bankruptcy. Generally, car sellers do not want to buy back a car, so if you are up to date on your payments, they will gladly enter into a reaffirmation agreement. We generally only suggest a client sign a reaffirmation agreement if they want to retain something, like a car, house, or maybe some furniture purchased on credit.How Do I Protect My Assets?
Hiding assets from a bankruptcy trustee is a very bad idea. You are better to be upfront about everything you have and have a bankruptcy attorney who knows the exemptions and related rules inside and out. A skillful bankruptcy attorney will use the exemption rules to your advantage to allow you to keep the things you love. If the trustee is entitled to something, we will negotiate a fair compromise with them. Do not risk doing this yourself. You need a trusted advocate on your side.
Give us a call today for a free consultation, (978) 458 – 1229.