The biggest concern people have when considering bankruptcy is whether they will lose all their money and property. This fear may be a result of Chapter 7’s nickname (“liquidation bankruptcy”).
In reality, however, bankruptcy does not result in stripping someone of everything they own. The point of bankruptcy is to provide a fresh start, which is why every state in the country allows debtors to protect some or all of their funds and assets through something called bankruptcy exemptions.
How Do Bankruptcy Exemptions Work?
When you file bankruptcy, you will choose to use either state bankruptcy exemptions or federal (although some states prohibit filers from using federal exemptions). You will then use that list of bankruptcy exemptions to shield what you own from the bankruptcy process.
For example, New York allows filers to choose either state or federal exemptions (but no mixing and matching). If you file Chapter 7 and choose federal exemptions, and you would like to protect your vehicle, you can claim exemption 11 U.S.C. § 522(d)(2) to protect up to $4,000 in a motor vehicle. If your vehicle is worth more than $4,000, the trustee may sell the vehicle, but you will receive $4,000 in return.
So, what about any money you have in your savings or checking accounts? Can you protect those funds the same way you could protect your physical property?
If you file in New York, you may use the federal wildcard exemption to protect up to $13,900 in anything you own—including cash, savings, or other types of funds in your bank accounts. If you choose state exemptions, there are a couple of different ways you can protect the funds in your bank accounts, but you won’t be able to protect as much as you would through federal exemptions.
In addition to cash on hand, savings accounts, and checking accounts, you may also exempt the funds in your retirement accounts, as well as any payments from:
- Social Security
- Unemployment
- Disability
- Public assistance
- Workers’ compensation
- Veteran’s benefits
- Crime victim’s compensation
- Lawsuit awards and compensation (up to a certain threshold)
- Court-ordered child or spousal support
- Wages (up to a certain percentage)
So, while a wildcard exemption may only protect a certain amount of money in your bank account, you may still protect additional funds if they fall into one of the above categories.
Ultimately, an experienced attorney will provide a thorough, accurate assessment of the way bankruptcy may affect your funds and assets.
Get Personalized Counsel from Our Seasoned Attorney
Are you considering bankruptcy but worried it may do more harm than good? At the Law Office of Seni Popat, our attorney works tirelessly to dispel many of the harmful myths surrounding bankruptcy. If you are struggling with debt, receiving constant calls from creditors, or being threatened with foreclosure or repossession, bankruptcy might be the legal strategy you need to regain your financial footing and build a better future. Our attorney can help you understand the bankruptcy process, protect your money and assets, and maximize the benefits that bankruptcy can provide.
For a free initial consultation, call (718) 340-3385 or contact us online today.