In the last post we discussed that everything you own has to be listed. Just because it’s listed doesn’t mean you are going to lose it in the bankruptcy. Two things determine whether the trustee might sell your property. The first of these is whether the property is exempt. The second is whether the trustee feels the property is of sufficient value to liquidate. The two concepts are intertwined in many cases. Today we’ll talk about exempt property.
Both the Bankruptcy Code and state law provide certain exemptions of property from claims of creditors. To be exempt means that the property is not available (is exempt) to a creditor to satisfy a claim. Society realized that taking everything a person owns will leave him destitute and unable to make a living, which in turn may make him reliant on welfare or even a criminal to provide the necessities of life. So state laws provide exemptions from any creditor. Likewise, the Bankruptcy Code provides that certain property is exempt from a trustee’s claims.
The Bankruptcy Code allows states to opt out of the federal bankruptcy scheme of exemptions. Utah is one of several states that have opted out, meaning the bulk of exemptions in bankruptcies in Utah exist under Utah state law, not under the bankruptcy code. There are one or two exceptions but almost all of the exemptions available to debtors in Utah are found in the Utah Code. Most of the common exemptions are found in sections 503 (homestead), 505 (property exempt from execution), and 506 (value of exempt property). The homestead exemption and the exemptions listed in section 506 are limited in value while the exemptions listed in section 505 are generally unlimited.
From these sections you can see that most household goods, such as couches, sofas, beds, bedding, clothing, tables, chairs, food storage (for up to one year), stoves, refrigerators, freezers, washers and dryers are completely exempt. Motor vehicles are exempt up to $3,000 per debtor. When it comes to cars, joint debtors can combine their exemptions onto one vehicle, to provide a maximum of $6,000 in exemption for one car, or they can use one exemption on one car and one exemption on a second car. What they cannot do is split any part of their individual exemption. For example the debtor cannot apply $2,000 of his exemption to one car and $1,000 to a second car.
Exemption planning is one of the most critical skills in bankruptcy. It can mean the difference between keeping or losing a substantial amount of your property. Done incorrectly it conceivably could mean the difference between getting a discharge or facing charges of bankruptcy fraud.
