Those who are facing desperate financial difficulties and looking for a way out are realizing that bankruptcy may be the protection they need to be free from consumer creditors and protect some or all of their personal property.
Chapter 7 is a process that may require debtors to liquidate some property, but it also allows filers to claim either state or federal property exemptions, although they cannot combine elements of the two. It is important to consider carefully if bankruptcy is the answer, and whether federal or state exemptions provide the most protection for each individual.
How to Keep Your Car
State and federal exemptions differ in this area:
- Federal exemption – $3,225
- Washington state exemption – $2,500 for one vehicle, or if filing jointly, $5,000 for two
In order to ensure that debtors will not lose their car to a lien holder, they may have to continue to make regular payments to the creditor and avoid repossession.
How to Keep Your Home
- Federal homestead exemption - $20,200
- Washington state exemption – $125,000, for real property or a mobile home
- Unimproved property but that is intended to be improved and occupied at the time of filing – up to $15,000 exemption
- Homestead declaration must be filed before sale of home
Saving a home may also entail continuing to make regular mortgage payments to the lien holder, as they will be able to foreclose if the debtor defaults.
Washington allows exemptions for other forms of personal property:
- Clothing
- Household goods, furniture, appliances, home and yard equipment – up to $2,700 ($5,400 if filing jointly)
- Furs, jewelry, and ornaments – up to $1,000
- Pictures, keepsakes
- Private libraries – up to $1,500
- Food and fuel for “comfortable maintenance”
- Contracts for tuition purchased more than 2 years prior to filing
- Prescribed health aids
- Any other personal property – up to $2,0000 (but not more than $200 in cash, bank deposits, stocks, bonds, or other securities)
- Personal injury awards – up to $16,150
- Fire insurance for lost, stolen, or destroyed property that is exempt
- Burial plots – if sold by a nonprofit cemetery association
- Tools of the trade – up to $5,000 for medical, legal, and religious professionals, farmers, and tools and materials used in any trade
Filing Schedule C of a Bankruptcy Petition
Any bankruptcy petition must be accompanied by a Schedule C list of all property exemption claims. The information on that form must include:
- The property claimed
- The federal or state statutes substantiating those claims
- The property exemption value for each claim
- Each claim’s current assessed value (not the market value)
Always Get Qualified Legal Advice
Success or failure can rest in the details of a legal petition or form. That is why it can be essential for a Washington resident to consult a bankruptcy attorney to advise them in their petition for Chapter 7 bankruptcy. While there are a number of exemptions available to them, if those claims are not filed correctly, it may hold up or even cause a petition to be rejected, denying them the benefits they deserve.
