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John F. Roberts, Esquire Jeanne E. Hovenden, Esquire
Serving all of the Greater Richmond, Virginia, Metropolitan and Tri-cities Area, and Surrounding Counties 7459 Old Hickory Drive Mechanicsville, Virginia 23111 (804) 746-4000 Richmond Area (800) 388-8298 Outside of Richmond Area (804) 746-4146 Facsimile |
The Bankruptcy Process
What Property Can A Debtor Keep?
The Bankruptcy Code allows the individual debtor to retain certain property as “exempt.” Exempt property is free of the claims of creditors and cannot be taken by the trustee to be liquidated. Virginia law determines the types and amount of exempt property.
The debtor is entitled to a “homestead exemption” which allows each householder to claim a one-time exemption of up to $5,000 (plus $500 for each dependent) in any kind of property. The debtor is also entitled to a specific exemption, sometimes referred to as the “poor debtor’s exemption,” in different types of property (for example, clothes up to $1,000; household furnishings up to $5,000; tools of a person’s trade or business up to $10,000). All of these figures, however, are subject to change by the Virginia General Assembly.
Other types of property (such as proceeds from a personal injury settlement or award and certain contributions to qualified pension plans or IRAs) may also be exempt under Virginia law. The debtor must claim the property exempt in his bankruptcy petition and for a claim under the homestead law, he must also properly file a homestead deed within a certain time limit. Creditors or the bankruptcy trustee can challenge the type or amount of the exemption claimed by the debtor.
A debtor may keep property that is subject to the liens of secured creditors as long as the debtor remains current on such obligations or reaches an agreement with the secured creditor. A debtor may “reaffirm” his obligations to a secured creditor who holds a lien on a house, car or other significant item but is not always required to do so. A reaffirmation agreement must be in writing, signed by both the debtor and his attorney, and must be filed with the bankruptcy court prior to the entry of the order granting the debtor’s discharge. A debtor may rescind a reaffirmation agreement within 60 days after signing the agreement. A debtor may also free or “redeem” property from a lien by paying the secured creditor the fair market value of the property in a lump sum. The bankruptcy judge can set the value if the parties do not agree.