Maximizing Your Bankruptcy Exemptions
One of the benefits of working with an experienced bankruptcy attorney is that they have the knowledge necessary to help a debtor protect their assets in a way most laymen cannot. One of the skills that bankruptcy attorneys use is exemption planning. In bankruptcy there are a certain amount of assets which a debtor can protect from creditors, they are called exemptions. For example, a debtor in Texas can protect their homestead completely no matter how much it is worth. A debtor attempting to represent themselves in bankruptcy may not know this and could end up sadly losing their home. The bankruptcy trustee will not "educate" the debtor about their exemptions because it is not their job.
The state and federal bankruptcy laws have different exemptions with different dollar amounts. In Texas a debtor can choose to use either the state or federal exemptions. Debtors are allowed to plan so that they can take full advantage of those exemptions.
Below are some examples of how debtors take advantage of the bankruptcy exemption system:
- A debtor might wait until they have received their tax return and use it to buy exempt assets such as household goods, clothing, life insurance, health insurance and tools for their trade and THEN file bankruptcy. Some uninformed debtors file bankruptcy right before they receive their tax return and end up losing it to the bankruptcy estate.
- A debtor may work with an attorney to have an inheritance or life insurance payout changed or delayed so that they can avoid the income becoming part of the non-exempt assets in bankruptcy.
- A debtor may decide to prepay certain essential expenses such as their utilities, rent or mortgage before they file bankruptcy.