What Assets Are Exempt from Liquidation in Chapter 7 Bankruptcy?

When some people hear words like “bankruptcy” and “liquidation,” they immediately think of frightening scenarios where practically everything they own gets taken away as punishment for their debt problems. This is not the reality. Bankruptcy is not a penalty, but a legal process designed to help people and businesses overcome severe debt problems. This would be extremely difficult if someone who filed for bankruptcy protection lost everything once their case was closed.

Indiana offers several exemptions to state residents so that they can meet their basic needs during and after their bankruptcy proceedings. These carve-outs include:

• Homestead exemption — Someone who is the sole owner of their Indiana residence is allowed to maintain up to $19,300 in equity on their primary residence. This means that if your remaining mortgage obligation is within this amount of your home’s market value, you should be able to hold on to your property. In the event that the equity exceeds that level, you might want to consider a Chapter 13 filing.
• Preservation of pension, retirement and education accounts — Federal law typically exempts creditors from reaching assets you have within a tax-exempt retirement plan. Other pension and retirement benefits might also be exempt from a Chapter 7 liquidation. Any deposits you make to an education account, such as a 529 or Coverdell, are also protected as long as the funds were transferred more than two years prior to your bankruptcy filing.
• Wild-card exemption — Each person has different assets and priorities. Accordingly, the state has a wild-card exemption under which you can shield up to $10,250 in tangible property or nonresidential real estate. You could use this to keep your car from being sold off to pay your debts.

When you speak with a qualified Chapter 7 bankruptcy lawyer, they will examine your circumstances and explain in detail how particular exemptions apply so that you gain an informed perspective on how a debt discharge under Chapter 7 will affect your daily life.

Weiss, Schmidgall and Hires, P.C. in Merrillville represents clients in Chapter 7 bankruptcy proceedings and other debt relief matters. To schedule a free initial consultation regarding your options, please call 219-293-8988 or contact us online.