How to Maximize the Property Exemptions in a Consumer Bankruptcy
Yes, we admit this title sounds a bit dull. But for debtors with significant home equity or other large assets, maximizing the exemptions could be the difference between a fresh start, which the Bankruptcy Code is designed to achieve, and a total loss, which the Bankruptcy Code is designed to avoid.
During bankruptcy, the trustee (person who manages a bankruptcy for a judge) cannot seize and liquidate exempt assets. Property exemptions include home equity, vehicle equity, personal property, and retirement accounts.
Do-it-yourself filers cannot possibly maximize the exemptions in a consumer bankruptcy. Neither can non-lawyer bankruptcy petition preparers. These people can only fill out forms. Only a Cicago bankruptcy lawyer maximizes the property exemptions and therefore optimizes your fresh financial start.
Set the Correct Value
Most people, including most lawyers, assume that an asset’s published value, like a home’s value as listed on a tax appraiser’s website, is the same thing as the bankruptcy value. That belief is incorrect, and also illegal. Under the Bankruptcy Code, debtors must list an asset’s as-is cash value on Schedule A or any other appropriate paperwork.
The as-is cash value is basically the garage sale value. Ben’s $1,000 TV set, which is slightly beat up, might fetch $100, at most, at a garage sale.
Two calculation methods are available. First, a Chicago bankruptcy lawyer could use the IRS Quick Sale Value guidelines. Usually, the QSV is 80 percent of the fair market value. The QSV varies slightly, usually depending on geographic location and the state of the market.
QSV calculation in a bankruptcy almost always gets the judge’s seal of approval, since the debtor uses a U.S. government-approved method in a federal judicial proceeding.
Baseline calculation is a high risk, huge reward method. The risk is that the judge could reject the assigned value. The reward is that, in many cases, baseline calculation could exempt almost the entire asset, regardless of its value. Baseline calculation rests on an as-is cash offer from a “we buy ugly houses” home investor. These offers average around 50 cents on the dollar.
Assume Frank has $75,000 of equity in a $200,000 home. A home investor offers him $100,000 cash for the home. That amount isn’t high enough to pay off the loan balance ($125,000). As a result, if the trustee liquidates Frank’s house, the creditors would be in the red.
This risky strategy is more likely to work if the home investor makes a written offer and the debtor attaches this offer to the bankruptcy petition.
Place the Asset Into a Trust
If you have some much home equity that the methods discussed above do not help, don’t fret, at least not too much. Other options are available.
Sometimes, a lawyer can transfer assets into trusts. The trust, not the individual, legally owns the asset. Usually, the settlor (person who creates the trust) and trustee (person who manages the trust) are the same person. Therefore, the trustee retains complete control over the asset.
If one spouse files bankruptcy, a tenancy of the entirety may be an option. The filing party is the owner and the non filing spouse is a tenant. In Illinois, it’s illegal for creditors to seize one person’s property to pay another person’s debts.
These legal transfers are usually subject to the 90-day bankruptcy fraud presumption. If a filing party moves assets within three months of a bankruptcy filing, that transfer is presumptively fraudulent and serious consequences could apply.
Work With a Thorough Cook County Lawyer
No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.
Source:
irs.gov/appeals/offer-in-compromise-oic-disagreed-items
