One of the main fears that people have while filing for bankruptcy is that they are going to lose everything they own. This is not true. The chief purpose of bankruptcy law is to give the debtor, a fresh start. If a debtor ended up losing everything that he/she owned, then bankruptcy would not be considered as a fresh start.
As per bankruptcy laws, there are certain assets that are exempt from liquidation. Exemptions let you keep assets that can be sold or liquidated for less than a specific dollar amount. For example, if you have a bank account or tax refund that is less than $1,000 you can keep it.
You Would Need An Attorney
Bankruptcy laws are very complex and if you are filing for bankruptcy you need to know what you can keep. That is why it is important to hire a good bankruptcy attorney. When you file for bankruptcy, you have to first decide whether you are going to file for Chapter 7 or 13. A large part of this decision is based on the assets you can keep after filing for bankruptcy and this is where a bankruptcy lawyer is of great help.
State And Federal Laws
Tax exemptions are governed by state and federal laws. In some states, you can use only state exemption list, whereas in other states you can avail one from between state and federal exemptions. Furthermore, some states allow you to choose either federal or state exemptions. For example, if you are living in Maryland, you can only use state exemptions. On the other hand, if you are living in Pennsylvania, you can choose between federal and state exemptions. In District of Columbia, you can only use the federal exemptions.
Exemptions Under Iowa Laws
Let us say that you are filing for Chapter 7 bankruptcy in the state of Iowa. Under the Iowa bankruptcy law, you can keep the following assets:
• Automobile - You can keep $7,000 in one automobile. Husband and wife can get exemption for two vehicles. This means that they can protect upto $14,000 in one vehicle.
• Books - Book collection, family libraries or Bibles worth $1,000.
• Burial plot- You are allowed to keep upto 1 acre of land.
• Personal belongings - Furnishings, household goods, clothing and jewelry worth $7,000 per person. Plus you can also keep your wedding or/and engagement rings.
• Weapons - You can keep one shotgun and one rifle or musket of unlimited value. However, handguns are not allowed.
• Insurance - If contributions to your life insurance policy were made more than two years from the date of filing bankruptcy, then you can keep unlimited value. However, if the contributions were made less than two years ago, then you are allowed to keep $10,000.
• Exemptions
1. Most pensions, TIAA/CREF, IPERs or 401K plans are exempt irrespective of the value. IRAs are also fully exempt; however, there are certain limitations.
2. Residential or utility deposits of upto $500 are exempt.
3. Your social security, public assistance, unemployment benefits, veteran or disability benefits of unlimited value are exempt.
4. If you engage in farming, then $10,000 worth of livestock, machinery, and livestock feed are exempt.
5. You also get $1,000 per person in wildcard exemptions.
6. Under the homestead exemptions, you have exemption for unlimited value on your house if it is on ½ acre in the city limits. If your house is outside an incorporated town or city, then you have unlimited exemption on 40 acres of your house. There are certain limitations so it is best to consult a lawyer to know exactly what you can keep under homestead exemptions.
Federal Exemptions
Under federal bankruptcy exemptions you can keep –
• $20,200 in homestead exemptions
• $9,850 in life insurance policy with loan value, in accrued interest or dividends
• $1,225 worth of jewelry
• $9,850 worth of household goods
• $3,225 in motor vehicle value
• $18,450 in personal injury compensation payments
• $1,850 worth of your trade’s tools
• $925 worth of wild card exemptions that you can choose from any of your property or assets
Bankruptcy is about getting a fresh start; therefore, it is important to find out beforehand what you would be able to keep and what you would have to give up. This will allow you to decide on the right bankruptcy chapter to file under.