Bankruptcy Filing – Property Exemptions and Schedule C
In our previous post we discussed the bankruptcy petition, the Schedule A listing of real estate/property and the Schedule B listing of personal property. In this post we will discuss property exemptions (Schedule C). Under federal and state bankruptcy laws, there are categories and amounts of property that are exempt from the bankruptcy process. This means that you are allowed to keep the property as part of your fresh start after bankruptcy.
Some states will allow individuals to choose the state or the federal exemptions. In Arizona, when you file bankruptcy you must use the Arizona exemptions. You do not have the option to choose the federal exemptions. This assumes that you meet the 2 year residency requirement of filing bankruptcy under Arizona laws.
As we mentioned in our earlier posts, part of the process of working with us is devising an effective strategy for managing your assets and your exempt property in order to maximize the amount of property you get to keep during the bankruptcy process. Having worked for decades with Arizona’s bankruptcy laws, we understand what is needed to legally preserve as much of your property as possible.
For many clients, exemption planning is not an issue because all of your property will fall under the exempt category. For others, we will work with you to identify that property that either falls outside the exemption or closely examine the value of the property. If the value of an item that falls outside the exempt category is not worth the time and expense to liquidate, the trustee may choose to abandon the property. If this happens the ownership of the property reverts back to what it was pre-bankruptcy.
When we prepare the Schedule C, we will compare it to the Schedules A and B to make sure that nothing has been forgotten in the process. What you will find is that the value of property listed in Schedules A and B are the same as in the Schedule C minus any outstanding loans on the property.
When you have outstanding loans that cannot be avoided through bankruptcy (such as a mortgage), we will only exempt the amount that is over and above the amount that you owe on the house. In this way, we don’t use up exemptions on property that the trustee cannot touch as part of the bankruptcy. For example, if you owe $90,000 on your house and your house is worth $100,000, we will only claim $10,000 as an exemption.
Objections to Exemptions
As part of the bankruptcy process, your creditors or the trustee have the right to object to your property exemptions. We pay close attention to Schedule C because the deadline for these objections is very strictly enforced. It is to our advantage to ensure that we make a good faith effort to list all of your exempt property so that the burden of objecting to a specific exemption falls on the trustee or creditor.
If for some reason there are oversights in the process of listing your exemptions, including the value, we can easily correct the mistake through an amended Schedule C. The trustee and your creditors will then have 30 days after we file an amended Schedule C to make any objections.
Schedules D, E, and F – Creditor Information
In these three schedules, we are required to include all of your debts in three categories. We are careful to include correct information about your creditor such as name and address because this list is used to send notice to your creditors. If your creditors do not receive the legal notice required under bankruptcy laws, there is a possibility that the discharge of that debt will be impacted negatively. We also ensure that the correct name and address is used in the petition when we list all of your creditors.
On the schedules, we will include the amount of the debt, whether the amount is in dispute, if there is a co-debtor, and the date the debt was incurred. Sometimes you may not be sure about the date or amount due. If this is the case, we make a good faith effort to include as accurate information as possible.
When there is a debt that is in dispute, it may be that you and your creditor disagree about the amount or even the validity of the debt. Perhaps a collection agency has purchased a debt that they claim is yours. If so, it is wise to mark that kind of debt as in dispute. By marking such a debt as in dispute, you keep the collection agency from being able to claim that you acknowledged the debt as valid in your bankruptcy filing.
If we do not list a debt, it is possible that the debt will not be discharged. We will work with you to list all possible debts you may have so that we take full advantage of the discharge. We will review your credit report with you so that even if you may not remember a particular debt, we can include it in order to ensure you may receive a discharge on that debt.
The reason there are three schedules we use for your creditors and debts is because the bankruptcy laws distinguish between different kinds of debt. We will discuss the three kinds of debt next.
Secured Debt: Listed in Schedule D
In Schedule D, we will include all of your secured creditors. Examples of secured debt would include, but are not limited to a mortgage, car loan, or security deposits. There may be other unique secured debts that you have that we will include in Schedule D.
Priority Debt: Listed in Schedule E
United States bankruptcy laws have created a category of debt referred to as priority debt. Priority debts only apply to unsecured claims. That means that even if a debt might be priority, if it falls under the category of a secured debt, it will be listed in Schedule D, not here in Schedule E.
Taxes are the most common priority debt owed by most clients filing bankruptcy. Not all taxes owed are priority debts. Our knowledge of bankruptcy law and practice will ensure that you only list priority debts that fall into this category in Schedule E. It is important to work with experienced attorneys since priority debts must be paid in full in chapter 13 and those debts will not be discharged under chapter 7 bankruptcy.
The other common priority debt is for child or spousal support that are late (or in arrears). There is an important distinction here for clients who are divorced. Property settlements are not priority debts, while back payments for support are considered priority debts. We will work closely with you to determine which category your debt falls into.
All Other Debt: Listed in Schedule F
If your debt is not secured and is not priority, it is listed in Schedule F. The only complications that might come up in this category of debt is when you have a collection agency that has been assigned to try and collect on a debt. We will most often list both the original company and the collection agency so that both companies will receive notification of your bankruptcy filing.
Our goal at Trezza and Associates is to give you the information you need throughout your bankruptcy process so that we are able to work as a team. We want you to take full advantage of the relief offered in bankruptcy. It can be a stressful and confusing process, but our experience with thousands of clients means you can rest assured that you have the best representation possible. Call our office to schedule your consultation and learn more about how bankruptcy can help end the financial stress you may be experiencing.