What is Nonexempt Property in Bankruptcy?
In many Chapter 7 bankruptcy proceedings, available assets are liquidated or sold, and the proceeds are used to provide some repayment to creditors. But the court will not deprive someone filing for bankruptcy of assets necessary to their life. Usually, you can keep your car and home if they are paid for or if you reaffirm your commitment to making payments. You may also be able to keep assets necessary to do your job – for example, expensive sound equipment you use in your DJ business. Retirement accounts are also considered exempt or off-limits to creditors. Furniture, clothing, or other personal items are usually exempt unless they are extremely expensive.
What is Nonexempt Property?
The bankruptcy court appoints a trustee to liquidate assets that are not considered essential, or exempt from this process. Nonexempt property can include most valuable items that aren’t necessities. Some examples of nonexempt assets are:
- Any real estate that isn’t your primary residence, like vacation homes, cabins, beach houses, etc.
- A newer or expensive car in which you have significant equity, especially if you have another vehicle you can use to go to work, or a second vehicle if you’re not filing jointly with a spouse.
- Musical instruments or expensive hobby equipment that you don’t use for work.
- Valuable antiques, including stamp or coin collections.
- Investments that aren’t specifically retirement accounts.
- High-priced artwork.
- High-end electronics. You can usually keep your smartphone and laptop as these are often necessary for work or everyday life, but if you have an 80-inch TV or something in a similar price range, it probably won’t be exempt. Likewise, if you have multiple televisions, the trustee may liquidate all but one of them.
- Boats or other watercraft like jet skis.
- Luxury clothing and accessories, such as expensive designer labels.
- Valuable jewelry.
- Anything highly valuable that is also non-essential.
How to Tell if Property Is Nonexempt
Like eighteen other states, New Mexico allows filers to choose between the state or federal exemption system. Depending on the kind of assets you have, one system may be better for your needs than the other. Federal law allows certain amounts for different kinds of exemptions. For example, you’re allowed $25,150 of equity in your current home. Other exemptions under the federal system include:
- $4,000 for a car or other vehicle.
- $1,700 for jewelry (this may be helpful if you have a family heirloom you don’t want to lose in liquidation).
- $625 for larger home items like appliances or furniture, with a total allowed amount of $13,400.
- $2,525 for items necessary to your profession, like tools or equipment.
- $13,400 worth of certain investments, including accrued dividends or interest from a life insurance policy.
The values above are adjusted for inflation periodically. However, the state system of bankruptcy exemptions may work better for some people. If you’re not sure, your bankruptcy attorney will go over both exemption systems and explain the differences so you’ll have a better idea of what might work for you.
What if You Want to Keep All or Most of Your Nonexempt Assets?
Assuming you have significant assets not covered entirely by the state or federal exemption system, you may want to consider a Chapter 13 bankruptcy instead of a Chapter 7 filing. Instead of liquidating assets, Chapter 13 bankruptcy works by reorganizing debt. All the debts you list on your paperwork will be consolidated. The court will work to get you a lower monthly payment that you can make each month and will divide that payment among your creditors. The plan is for you to have all the debt paid off in three to five years, but the court considers your income and amount of debt. If it’s clear you’ll never pay it all off in the allotted time frame, the judge may discharge, or erase, some portion of your debt, and declare you responsible for the remainder, which will be covered by your monthly payment.
Are There Any Other Options for Clearing Debt?
There are a few other types of bankruptcy that may be viable in less common situations, such as when you have a family farm in debt. Your bankruptcy attorney will let you know if any of these options apply to your situation, but chances are they do not.
In some circumstances, you may also be able to consolidate and clear debt outside of the bankruptcy system. Depending on how much and what kind of debt you have, your bankruptcy attorney may be able to arrange a repayment plan with some or all of your creditors, especially if you have few or no non-exempt assets. Sometimes creditors are willing to accept a smaller monthly payment if the alternative is you filing a Chapter 7 bankruptcy where the creditor gets absolutely nothing. (This is known as a “no asset” bankruptcy.) Your lawyer may also be able to convince some creditors to waive or reduce late fees or give you a reduced interest rate in exchange for you paying the original amount owed. If you want to try for a repayment plan, it’s important to be honest with your attorney about your income, monthly expenses, and what you think you can realistically afford to pay each month. Repayment plans can end in a hurry if you miss more payments, and your creditors can put you back in collection. If this happens, you may need to reconsider bankruptcy.
New Mexico Financial and Family Law: Get Help From an Experienced Bankruptcy Attorney Today
Knowing what to do when your bills exceed your income can be difficult. Bankruptcy isn’t always necessary, and it does have drawbacks, such as reducing your credit score. However, for some people, it provides the relief they need to get back on their feet financially. If you have questions about bankruptcy or other alternatives to resolve your debt, please contact us at New Mexico Financial and Family Law at (505) 503-1637 for a free consultation. We’re happy to answer your questions, explain the process, and help you move forward with whatever plan you make for your financial future.