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Common Questions about Bankruptcy Law

If I file for bankruptcy, can I keep my car?

This is a very common question asked of chapter 7 bankruptcy attorneys in Utah. Luckily, the answer is fairly simple. Under Utah Code Annotated (2012)  78B-5-506(2)(b) “An individual is entitled to an exemption, not exceeding $2,500 in value, of one motor vehicle.”

Put simply, a person filing chapter 7 bankruptcy can protect $2,500 in “Equity” in one vehicle. Consider the following example: you own a car worth $10,000 and your loan is $7,500. Your equity in the car would be 10000 – 7500, or 2500. Under section 5-506, you would protect the full 2500 with your exemption. However if you owned the car worth 10,000, your exemption protection would still only be 2500 and you would have 7500 in unprotected equity in your vehicle.

There are other options available for those with excess equity in a vehicle. Call today for information on how to protect your car in a chapter 7 Utah bankruptcy

What can you tell me about Student Loan Bankruptcy?

Under 11 U.S.C. § 523(a)(8) “A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt…unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—
(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;” (emphasis added)

The 10th Circuit Court adopted a three prong test known as the “Brunner” test when deciding whether to discharge a student loan obligation. (Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987)). That test is as follows:

(1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans;

(2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

(3) that the debtor has made good faith efforts to repay the loans.

Essentially then, if a person who has been trying to pay back the loans can show that they cannot maintain even a humble lifestyle and that circumstances are not likely to change, such a person could have student loan debts eliminated in bankruptcy.

Can I keep my home if I file for bankruptcy?

Luckily, in Utah Utah Code Annotated (2012) 78B-5-503 states that:

“(2) (a) An individual is entitled to a homestead exemption consisting of property in this state in an amount not exceeding:
(i) $5,000 in value if the property consists in whole or in part of property which is not the primary personal residence of the individual; or
(ii) $20,000 in value if the property claimed is the primary personal residence of the individual.
(b) If the property claimed as exempt is jointly owned, each joint owner is entitled to a homestead exemption; however
(i) for property exempt under Subsection (2)(a)(i), the maximum exemption may not exceed $10,000 per household; or
(ii) for property exempt under Subsection (2)(a)(ii), the maximum exemption may not exceed $40,000 per household.”

Simply put, a person can generally retain their home if they have less than $20,000 in equity for a single filer, or $40,000 if filing jointly with a spouse.  There are many other considerations you should consider in whether to keep your home in a Utah chapter 7 bankruptcy. Please call today for more information.

What happens to my property if I file for bankruptcy?

11 USC § 541 states that when a person files a bankruptcy case “all legal or equitable interests of the debtor in property as of the commencement of the case…” are pooled together into a “bankruptcy estate.” 

A trustee is appointed by the court to look at your estate (or property) to determine whether there is anything there that should be sold to pay off your creditors. If a trustee finds that you have property that should be sold to pay off creditors, he will order you to turn over that property to him and he will sell it and use the proceeds to pay your creditors back.

Attorneys use exemptions to protect your property. In Utah, there are dozens of exemptions for personal property. An exemption simply means that Utah lawmakers have decided that certain property cannot be sold for the benefit of creditors and is therefore “exempt” from sale. The most common ones are found in Utah Code Annotated (2012) 78B-5-506.

Essentially, people who file chapter 7 bankruptcies in Utah get $500 in exemption money (per filing spouse) in different categories. $500 for furniture, $500 for sentimental items such as wedding rings etc. There are also other exemptions available for things such as sewing machines, carpets, beds and other necessary items.

78B-5-506.   Value of exempt property — Exemption of implements, professional books, tools, and motor vehicle.
(1) An individual is entitled to exemption of the following property up to an aggregate value of items in each subsection of $500:
(a) sofas, chairs, and related furnishings reasonably necessary for one household;
(b) dining and kitchen tables and chairs reasonably necessary for one household;
(c) animals, books, and musical instruments, if reasonably held for the personal use of the individual or his dependents; and
(d) heirlooms or other items of particular sentimental value to the individual.
(2) An individual is entitled to an exemption, not exceeding $3,500 in aggregate value, of implements, professional books, or tools of his trade.

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