Exempt Debts and Debtor Assets in Chapter 7 Bankruptcy

David Gomez provides coordinated estate planning services with the Platinum Law Group in Baltimore, Maryland. Experienced in bankruptcy law, David Gomez and the Platinum Law Group have extensive knowledge of Chapter 7 bankruptcy. 

For those who are considering bankruptcy, one aspect to factor into their decision is whether they qualify for liquidation bankruptcy, which allows the elimination or discharge of their full range of eligible debts. Types of debts that often cannot be fully discharged include taxes owed, student loans, child support, and those related to criminal convictions and DUI-caused injuries. 

In rare situations, debtor assets may be employed by the trustee in satisfying debts. Vehicles that are exempt include the full range of retirement accounts, from deferred compensation 401k to stock bonus and profit sharing plans. In addition, the primary vehicle and house claimed as the primary residence are exempt up to specified equity limits, as are single household items such as antiques valued at less than $675.

Tax Changes Mean Bankruptcy Changes

Platinum Law Group and David Gomez have helped many people with estate planning and bankruptcy law issues. From their offices in Baltimore, David Gomez and Platinum Law Group enable people to erase their debt and get their financial lives back on track.

Changes in the tax code in 2018 affect the way individuals file bankruptcy, especially those with high incomes. High earners stand to receive a significant tax cut, which can affect their deduction on the bankruptcy “means test” and free more income to pay creditors.

The bankruptcy means test tells the government the amount of disposable income a filer can pay to creditors. People with little or no disposable income can often file Chapter 7 bankruptcy, which is more forgiving than Chapter 13 bankruptcy. 

In Chapter 13 bankruptcy, disposable income is put toward a payment plan but can be reduced further by certain deductions. These deductions will also be reduced by the new tax plan.

As a result, high earners filing for bankruptcy are more likely to need to file Chapter 13 instead of Chapter 7. Chapter 13 filers will also likely end up paying more on their bankruptcy payment plans. People below the median income, however, should experience little change in the way they file bankruptcy.

Selecting the Right Type of Bankruptcy

David Gomez and the professionals at Platinum Law Group help their clients with bankruptcy issues and estate planning. Platinum Law Group and David Gomez have advised many clients on bankruptcy issues.

Debtors who initiate the filing for bankruptcy can choose to file in multiple ways, with the most common for individuals being Chapter 7 and Chapter 13. In Chapter 7 bankruptcy, all assets are liquidated and as much debt is paid off as possible. The proceeds from these sales are given to creditors such as banks and credit card companies. Within four months of liquidation, the filer receives a notice of discharge. 

Chapter 7 bankruptcy does not protect any assets, so people who want to keep a family home or a company should think carefully before they file Chapter 7. People with few assets should consider Chapter 7 as the preferred type of bankruptcy.

In Chapter 13 bankruptcy, filers who have a consistent annual income can retain some assets and pay off as much debt as possible within a period of three to five years. After completing this repayment period, any remaining debts are discharged. 

A Chapter 13 bankruptcy provides some protection from creditors during the repayment period. Debtors should choose this form of bankruptcy if they have assets they need to protect, such as a house.

How the Estate Tax Works

Platinum Law Group and David Gomez handle estate planning and bankruptcy cases in Baltimore, Maryland, and the surrounding area. David Gomez and Platinum Law Group work to minimize the impact of the federal estate tax for their clients.

An estate tax accounts for all things a party owns at the time of death as well as certain other financial interests. These items are given their current fair market value and totaled to become the gross estate. 

Insurance, trusts, business interests, real estate, cash on hand, and other assets are subject to the federal estate tax. Most taxable estates are small enough that no estate tax return needs to be filed. As of 2018, an estate tax return should be filed only if the estate has combined gross assets and taxable gifts worth more than $11,180,000.