An Alternative Way to Settle an Objection to Exemptions in Bankruptcy

Exemptions in bankruptcy are a way for individuals to keep part or even most of their assets while discharging the debts that are hampering their ability to pay back the money owed.  However, the list of acceptable exemptions can vary from state to state and can even conflict between state and federal law.  Knowing how to navigate the murky waters of exemption could in fact end up reducing the amount that is eventually paid to creditors by quite a bit.

Objections to Exemptions

Creditors have 30 days from the "341 meeting" to file any objections they may have to a list of exemptions.  Should they choose to do so, debtors traditionally have two options:

• File a response, which must be done within 15 days, and if necessary appear in court before a bankruptcy judge to justify the particular exemption under question, or;
• Contact the creditor and offer to remove the exemption in question from the list, and see if they will agree to the remaining exemptions.

A Third Strategy

There is, however, a third option which many people fail to take advantage of:  the strategy of continuing (indefinitely) the bankruptcy hearing in order to notify the creditors they must file proofs of claim.  "Innocent until proven guilty" applies in bankruptcy as well as criminal courts, which means that the burden of proof is on the creditors to show that something should not be included on the list of exemptions.  Depending on the type of bankruptcy filed, creditors can be barred from sharing in any distribution of assets if they fail to file a timely proof of claim.  Why bother with all the extra work?   Because a little-known statistic is that up to 50% of creditors will fail to follow through in cases of bankruptcy after the initial filings are complete. 

Negotiating a Favorable Settlement

If the creditor misses the deadline for filing in this way, they will often be much more willing to negotiate a settlement of the remaining debts at a much lower amount than was previously proposed.  Even if they are not, the creditor will then have to both prove in court that there is no adverse prejudice to the debtor as a result of the delay, as well as proving that the exemptions under question are unlawful.

Getting Bankruptcy Help

The information contained in this article is intended for informational purposes and is in no way meant to replace the help of a professional attorney.  Anyone filing for bankruptcy should contact an attorney as soon as possible.