Exemption Strategies In An Indiana Bankruptcy

The Bankruptcy Code allows honest yet unfortunate debtors to obtain fresh starts free of crippling debt. So, debt discharge is only part of the equation. If bankruptcy debtors lose most of their assets, they go back behind the starting line. That’s not the intention of the Code. So, Indiana recognizes a number of bankruptcy exemptions.

On the surface, these exemptions do not seem as generous as those available in other states. But with thoughtful planning and the help of an experienced attorney, they are usually more than sufficient to protect the debtor’s assets.

Houses

A married Indiana couple may exempt up to $28,600 in home equity. People who have been in their homes for less than about ten years usually have very, very little actual equity in their properties. The bank collects as much interest as possible in the first few years of the loan. So, even if the monthly installment payment is several thousand dollars, very little goes to equity. Most of it goes to interest.

People who have been in their homes for more than about ten years often do have substantial equity. The aforementioned exemption ceiling could be an issue in these cases. Moreover, if the debtor is a single filer, the exemption amount is only $19,300.

In cases like these, it is important to accurately assess home value for purposes of the Bankruptcy Code. The issue is not really the property’s the fair market value. Instead, the Bankruptcy Code requires owners to list the “garage sale value” of all their assets, including their homes. Some people use the IRS quick sale value, which is 80 percent of the fair market value.

The as-is cash value might be even more accurate in these cases. Most home investors will pay a maximum of 50 percent of the home’s fair market value. Arguably, such a figure is the home’s “garage sale value.”

Assume Horace Homeowner has $50,000 of equity in a $100,000 home. Based on those numbers, the court could force Horace to sell his home so there would be money to distribute among Horace’s creditors. But not so fast. The as-is cash value may only be $50,000. If that’s the case, the law would protect all his home equity.

Motor Vehicles

Roughly the same principle applies to cars, motorcycles, boats, and any other motor vehicles. Indiana debtors must use the wildcard exemption to protect these items. If the debtor has multiple vehicles, that might seem to be a problem. But once again, not so fast.

Assume Horace has a fishing boat which he is unable to protect. If it is in good condition, the boat is worth $2,000. Even though it is not exempt, he may get to keep it. The court may spend almost that much money seizing the boat, making any necessary repairs, storing it, and marketing it to potential buyers. If that’s the case, the court may elect to simply let Horace keep the used boat. Financially, liquidating it would not make sense for the creditors.

Work With Dedicated Lawyers

Even stingy Indiana exemptions go a long way. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle cases in Illinois and Indiana.

Resource:

washingtonpost.com/blogs/where-we-live/post/selling-a-home-to-a-real-estate-investor/2012/12/11/5907944e-40bb-11e2-a2d9-822f58ac9fd5_blog.html