One of the great things about bankruptcy is that one of the primary purposes of bankruptcy law is to help people protect their property from creditors when they are facing a dire financial situation. This is true in both Chapter 7 and Chapter 13. It would not be good for anyone (you, creditors, society, etc.) if people could have all of their stuff seized just because they missed paying a few bills or lost their jobs. That is when the bankruptcy exemption laws come in…
Your Bankruptcy Exemption Choices Include:
In Washington, we are lucky to have the choice or two different sets of exemption laws – 1) the Federal Exemptions, and 2) the Washington Exemptions. You have to use only one set of laws, so choose wisely! Your bankruptcy lawyer can help you with this.
The majority of folks generally will choose the Federal exemptions. This set of laws allows for substantially more “wildcard” protection. As you probably guessed, “wildcard” is a protection that you can use to protect anything you want (kind of like the joker in many card games). The amount can vary, depending on whether you are filing with a spouse and whether you are using some of it on home equity. Generally, most folks without any home equity (renters, home owners that are “under water”) will get to enjoy approximately $13k in wildcard exemption under the Federal scheme. This number can increase dramatically if you are filing your bankruptcy jointly (with your spouse). These impressive numbers are opposed to the paltry wildcard available under the Washington scheme, which is less than $3k. These numbers can vary depending on your situation, so talk to a Western Washington bankruptcy attorney to examine your particular circumstances.
However, what you gain in flexibility with the wildcard protection in the Federal Exemptions you will lose if you are trying to protect a large amount of equity in your house. When you own a house and you have substantial equity in it, you may want to go with the Washington Exemptions. Under our state exemptions, you can protect up to $125k in home equity. In other words, even if you owe $100k less than your home is worth – your creditors cannot take your house or make you take out a loan from the home equity to pay them. This is in comparison of about $23k of home equity protection under the Federal Exemptions (and using this much of it substantially cuts back on the wildcard). As long as you can afford to keep the house, you will also get to keep the equity in it. You will, of course, need to continue making payments on the house after the bankruptcy if you have a mortgage.
Use Exemption Laws Wisely
These exemptions are great! It is uncommon for folks to have to give up any of their property in a Chapter 7. One reason that this is the case is that, as we’ve been discussing, the exemption laws are pretty generous. Another reason is that there is an income and other limitations that can sometimes exclude people from even filing a Chapter 7 that have lots and lots of property. You are not left high and dry when you file bankruptcy. The laws are designed to give you a “fresh start.” It would be a little hard to get started if you were left with nothing. That’s why it is important to see a Mount Vernon bankruptcy attorney for help. We’ll work through your situation so you can effectively use these laws to protect your stuff. You want (and deserve) to maximize your fresh start with Westward LAW PLLC and Mark D. Nusz.
