What you can protect during a bankruptcy?

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What you can protect during a bankruptcy?

Certain states allow the debtor to choose between their specific state exemptions and the federal bankruptcy exemptions, but Indiana is not one of those states. In Indiana a debtor must use the Indiana state bankruptcy exemptions. However, in Indiana, married couples who are filing together in joint bankruptcy are permitted to double the state exemption amounts.

Two common questions/concerns for individuals who are contemplating filing for bankruptcy are: will I lose my home and will I lose my car? The Indiana exemptions do protect those two vital assets.

What Does The Indiana Homestead Exemption Protect?

The Indiana homestead exemption protects a certain amount of equity in your home. An individual can exempt up to $19,300 in real estate or personal property that is used as your place of residence (i.e., either your home or a mobile home). Also, if the debtor owns any interest in a piece of real estate that is held as a tenant by the entirety – that property is exempt (unless both of the owners are filing for bankruptcy). Tenant by the entirety ownership is reserved for married couples and it protects any equity in the home from debts owed by only one spouse.

Indiana does not have a specific motor vehicle exemption, but an individual’s vehicle can be protected under other state exemptions. Indiana allows debtors to use Indiana’s “Wildcard” exemption to protect equity in their car, truck, van, or any other vehicle they own. The Indiana “Wildcard” exemption permits a debtor to protect any non-residential real estate or tangible property of their choosing up to a value of $10,250.

Indiana Bankruptcy Exemptions

Indiana bankruptcy exemptions include several items of personal property:

  • Intangible personal property up to $400.
  • All health aids.
  • Education savings accounts (depending on when the contributions were made).
  • Money in medical or health savings accounts.
  • Spendthrift trust assets.
  • Military uniforms, equipment, and guns.
  • The debtor’s interest in a refund or earned income credit for exempt bankruptcy property.
  • Earned income tax credit.

Here are some other Indiana exemptions:

  • All fraternal benefit society benefits are 100% exempt.
  • Life insurance policies that name the insured’s spouse, children, dependent relative, or any creditor as a beneficiary and the proceeds of such policies are exempt from claims against the insured and insured’s spouse.
  • Interest in specific partnership property is exempt.
  • Specific pension and retirement plans:
    • Specific pension benefits for public employees.
    • Retirement benefits for teachers.
    • Pension benefits for police officers and firefighters.
    • Tax-exempt retirement plans are exempt in every state per federal law.

Additional important protections under the Indiana exemption include:

  • Unemployment compensation: these benefits are 100% exempt.
  • Wages: the lesser of 75% of earned but unpaid wages OR 30 times the Federal minimum wage.
  • Workers’ compensation: all workers compensation is 100% exempt except for child support claims.

It is important to know what exemptions are applicable and which are not. Using the exemptions improperly can cause you to lose the property you are trying to protect. Filing for bankruptcy can be an extremely stressful process for an individual.

The Indiana bankruptcy exemptions were created to help protect some essential assets of the debtor post-bankruptcy. The State of Indiana does not want to place a debtor in an entirely helpless state after they do the responsible thing of filing for bankruptcy. The state wants the debtor to have a roof over their head and a vehicle to get to and from work and handle other essential needs.

That being said, these exemptions that are used to protect specific assets must be used correctly. If a debtor does not use care when trying to exempt their property, they can potentially lose it.

Just because you declare something to be exempt does not mean you will automatically be able to keep that property. A debtor will only be allowed to exempt and retain property that will be needed to maintain their household and a job. Those items can include furnishings, clothing, and some equity in a vehicle.

The bankruptcy court appoints a “bankruptcy trustee” to manage your bankruptcy proceedings. The bankruptcy trustee will review the debtor’s official forms to ensure that the debtor has the right to protect the property they deemed to be exempt. If a trustee does not agree with your proposed exempt properties, they can file a formal objection with the bankruptcy court. Then the bankruptcy judge will determine whether your property is properly exempt or not. However, more often than not, a trustee will attempt to initially resolve the discrepancy with you informally and not file an objection.

Filing bankruptcy is a stressful situation; some small mistakes when determining the property to exempt can be solved without any further harm to the debtor. Unless it is clear that a debtor is trying to hide assets from the court, the trustee will not file an objection. When there is a minor exemption issue, the trustee will likely reach out to the debtor or debtor’s attorney to resolve the issue informally and quickly. An important note is that it is never wise to try and “pull one over” on the trustee or the bankruptcy court. When a debtor intentionally makes an inaccurate statement regarding their property to the bankruptcy court, it is considered fraudulent. Bankruptcy fraud which would turn into a federal criminal matter. Additionally, if it is learned after the fact that property was not disclosed to the Trustee or Bankruptcy court, you could lose your discharge and the debts would be restored with the stay on creditors removed.

Contact Banks & Brower in Indianapolis

It is always suggested to debtors to consult with an attorney prior to filing bankruptcy and retaining an attorney to guide you through the bankruptcy process. Banks & Brower has Chapter 13 bankruptcy attorneys and Chapter 7 bankruptcy lawyers who can guide you through the bankruptcy process as efficiently as possible. Give us a call today to discuss your options.