A key feature of Chapter 7 bankruptcy is the liquidation analysis. The Chapter 7 Trustee reviews your assets and makes an assessment if there are any assets that can be liquidated for the benefit of creditors. Do not worry. Ninety nine percent of the cases we file, there are no assets liquidated. You keep your car, your house, your 401k or other retirement and other personal possessions. We do the liquidation analysis for you and you know before you file if any assets may be surrendered to the Trustee and liquidated for the benefit of creditors.
The liquidation analysis allows you to keep exempt property and requires you to surrender to the Trustee your nonexempt property. For the most part, electing exemptions for your property is routine. In Vermont, you can choose between the Federal exemptions and the State exemptions. We will select the schedule of exemptions that will best benefits you. The election of exemptions can be quite complex.
Certain elements of the bankruptcy code require some debtors to choose the exemption law of the state where they lived two years before the date on which they file bankruptcy. This rule is intended to discourage people from moving to states with more favorable exemption laws just before filing for relief in bankruptcy. This is one of several complexities related to exemptions where an experienced bankruptcy lawyer can be of significant help.
If you decide to file for bankruptcy, we will help you understand the bankruptcy exemptions under federal and state law. These laws determine which of your property is protected from being sold when you file for a Chapter 7 liquidation bankruptcy, or may have a bearing on how much you have to pay your unsecured creditors if you file for Chapter 13 reorganization/wage earner's bankruptcy.
Both Vermont state law and federal bankruptcy law provide a list of assets that you can exempt from a bankruptcy proceeding. As a resident of Vermont, you can choose whether to use the Vermont list or the federal list - but you cannot cherry-pick from both lists.
Examples of the types of property exempt from bankruptcy include:
- A portion of the equity in your primary residence that you own
- A portion of the equity in a motor vehicle
- Clothing, furnishings, and household items, up to a total dollar value
- Up to a certain value of jewelry
- Up to a certain value in books and equipment of your trade or profession
- Public assistance benefits
- Alimony and child support payments
- Social Security benefits and retirement accounts
Non-exempt property includes all the property that you own that isn't protected by one of the bankruptcy exemptions under Vermont or federal law. This includes certain categories of property, as well as exempt property that exceeds the dollar amount allowed by the exemptions.
In a Chapter 7 bankruptcy, your non-exempt property is sold by the bankruptcy trustee. The proceeds from the sale are then used to pay your creditors according to the provision of Chapter 7 of the Bankruptcy Code. Rarely do creditors get paid in full in Chapter 7. Usually, creditors get a pro-rata share of what is left after the costs of selling assets and administrating the bankruptcy case.
In a Chapter 13 bankruptcy, the value of your non-exempt property determines the minimum amount your creditors must get paid through the Chapter 13 payment plan. In a Chapter 13 bankruptcy, you repay some to all of your debts according to a repayment plan approved by the bankruptcy court.
Under the Bankruptcy Code, a repayment plan can only be approved if, under the plan, the debtor pledges to pay all of their projected disposable income and the unsecured creditors receive the same amount of money they would have received in a Chapter 7 bankruptcy. The amount of repayment is decided by what you can afford to pay based on your income and household expenses. You submit a monthly budget to the court showing your income and expenses.
As a result, if your projected disposable income is low enough that your unsecured creditors would receive a greater payment in a Chapter 7 bankruptcy, you may be required to pay an even higher amount in your Chapter 13 repayment plan - potentially as much as the aggregate value of your non-exempt property.