Congress planned the bankruptcy law to provide your fresh start. That means you get to keep your home, car, furniture, appliances etc. unless there is something unusual about your case. With good pre-bankruptcy planning, most people do not lose property. See Iowa Exemptions.
Some planning is required with respect to accrued wages, tax refunds late in the year and non-exempt assets. This is the main reason you hire an attorney, to avoid loss of assets.
Common Property Issues
Here are the most common issues we see when it comes to potential loss of property.
Filing when you have a large tax refund pending. This applies to filings from about August 1st until you receive and spend refunds. Normally you will keep $1,000 single filing or $2,000 joint filing if you both had withholding during the year, plus all earned income credit. You can also keep some additional using your wild card exemption(s). If you plan to wait to file bankruptcy until your refunds are received and spent, be sure to talk to Jeff about how you intend to spend the money so there are no problems with preference payments.
Bank Balances. We have a $1,000 wild card exemption, $2,000 joint married filing. We use the wild card to protect bank balances, accrued wages and other misc. assets like big tax refunds. As a rule, it is best to spend down your bank balance before we file so we have more flexibility to protect something else.
Preference Payments to Family. If you owe a bunch of money to credit cards or medical etc. and you say "to heck with them, I don't love them, I love mom, so I am going to repay mom for past due debt before I file bankruptcy", that is a preference payment. The Judge can take that money back and give it to your other creditors if done within 1 year of filing. So don't. Better to repay family after filing bankruptcy.
Boats, motors, trailers, campers, motorcycles, Jet Ski?s, ATV?s and similar items. Iowa lawmakers do not consider these items essential to getting a fresh start, so unlike your home, cars, furniture, retirement plans etc. there is no exemption for these ?toys?. But, say you have a boat worth $2,000 and you owe $1,900 on it. The lender gets paid first if the boat is sold so it is unlikely the trustee would want your boat. The trustee would likely ?abandon? it back to you. So even though it is not exempt, you would normally keep it. Many non-exempt assets are of so little value that the trustees may not bother with them. There is a cost involved in filing papers with the Court, having the item picked up, stored, auctioned etc. If the item is only worth a modest amount of money, the trustee would be wasting time and money by taking it from you, so they will abandon it back to you. If you have a question about one of these items Jeff should be able to tell you what to expect.
Business Equipment is exempt up to $10,000. This is designed to keep your small business operating if you wish. So if you have $40,000 in business equipment and owe $30,000, you would normally keep it since your equity is $10,000. This also applies to tools you use at work.
Titles on Vehicles. Your vehicle exemption is $7,000, which applies to equity. So if your car is worth $15,000 and you owe $10,000, your equity is $5,000 and you could keep that car. With joint married filing you have two vehicle exemptions. But you need to be on the title to claim the exemption. So if both vehicles are titled in the husbands name only, the second vehicle can be at risk, although if there is little or no equity in it you should be fine anyway.
Extra Cars & Trucks. Although you can exempt one car per person, since some of your cars may have no equity (the loan is higher than the resale value) and some of your cars may have high mileage and be worth little, most of our clients keep extra cars and trucks.
Whole Life Insurance. Cash value in your whole life insurance is exempt if the beneficiary is your spouse or child. If you have cash value and your beneficiary is not your spouse or child, discuss this with Jeff first.
Personal Injury or other Claims. Exemption issues can arise if you have claims against others.
Garnished Funds. Many clients wait to file bankruptcy until they are already being garnished. You should not expect to get this money back. Best to file bankruptcy BEFORE any garnishment. Lawsuits are a sign that garnishment is looming and it is time to file. First they clear out your bank account and then they garnish 25% of disposable wages.
Health Savings Accounts. We need to schedule and claims these funds exempt, so be sure to tell Jeff if you have them.
Undisclosed Assets. You must schedule (list) and exempt all your property in order to keep it. If you leave property off the petition it cannot be claimed as exempt.
Inheritance & Life Insurance Proceeds. If you anticipate an inheritance of life insurance proceeds within six months of filing bankruptcy, you should wait to file.
Buy Backs & Pre-bankruptcy Planning
When an item is at risk Jeff will know what costs the trustee is facing to take the item from you. A buy back can often be negotiated. In this case you would pay some portion of the value of the non-exempt item in order to keep it. There is also other legal pre-bankruptcy planning that Jeff can do with you to reduce or eliminate the need to buy back.