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What Property Can I Keep?

In a chapter 7 case, you can keep all property which the law says is "exempt" from the claims of creditors. Your exemptions are defined by Iowa law.

The most common exemptions are as follows, and available to each debtor.

Automobile -- $7,000 in one motor vehicle for each debtor. This is the equity in the vehicle, so if the value of the vehicle is, for example, $15,000 and there is a loan of $8,000, then there is equity of $7,000, which is the maximum amount allowed per person filing for bankruptcy.  A husband and wife can protect two vehicles, or can combine their exemptions to protect up to $14,000 in one vehicle.

Books -- $1,000 in bibles, book collections, or family libraries.

Burial plot -- Up to 1 acre.

Child support or alimony, to the extend reasonably necessary for the support of you or your dependents.

Household goods, furnishings, clothing and jewelry -- $7,000 per person, plus any wedding or engagement rings.

Firearms -- One shotgun, and one rifle or musket, of unlimited value. No handguns.

Cash value of Life Insurance -- Unlimited value if the contributions were made more than two years before bankruptcy, but limited to $10,000 contributed withing two years of bankruptcy.

If engaged in farming -- Machinery, livestock, and feed for livestock -- $10,000.

Pensions or annuities -- Depends on type, so see your attorney. Most pensions, 401k plans and TIAA/CREF or IPERs are exempt regardless of value. IRAs are fully exempt, with certain limitations.

Residential or utility deposits -- $500.

Social security, unemployment, public assistance, veteran’s, or disability benefits -- Unlimited.

Tools or Implements of the debtor’s trade or business -- $10,000.

“Wild card” -- $1,000 per person. This may be used for any type of property the debtor wishes, but is usually used for bank accounts or cash.

Homestead -- Unlimited value limited to house on ½ acre in the city limits, or 40 acres if outside an incorporated town or city.
Exceptions:
Consensual liens, such as mortgages.
Debts for improvement of the homestead.
Pre-existing debt (see your lawyer).
Each family is entitled to only one homestead. A married or unmarried couple is not entitled to two homesteads.

In determining whether property is exempt, you must keep a few things in mind. When determining the amount of property you can keep, it is the resale value that matters. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.

While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn't file bankruptcy.

What Will Happen to My Home and Car If I File Bankruptcy?

In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt.  Even if your property is not fully exempt, you probably will be able to keep it if you file a Chapter 13 case.

However, some of your creditors may have a "security interest" in your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don't make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.

There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full.  This is called "reaffirmation" of the debt.  Or you can pay the creditor the amount that the property you want to keep is worth.  This is called "redemption", and, as a practical matter, usually requires new financing with a different lender.  If you put up your household goods as collateral for a loan (other than a loan to purchase those goods), you can usually keep your property without making any more payments on that debt.

Iowa City: (319) 338-9852  Muscatine: (563) 263-8801

email: steve@iclawfirm.com

Steve Klesner of Johnston, Stannard, Klesner, Burbidge & Fitzgerald, P.L.C.