When it comes to Chapter 7 bankruptcy, the idea established with the bankruptcy code was to find a balance between the discharging or getting rid of one’s debts and allowing one to retain enough assets to reorganize and not endure further financial hardship. Indeed, it would not make much sense and it would not be of any public benefit to take all of a one’s assets. In such a case, the person would only continue to struggle and could not get back one’s feet. Certain precautions and allowances have been set in place to protect a person against complete destitution after Chapter 7 bankruptcy. Exemptions for qualifying properties are the saving grace for someone who files for bankruptcy relief. At Behm Law Group, Ltd., we can work with you to determine which exemptions would apply to your particular circumstances when filing for bankruptcy in Fairmont, MN.
There are several kinds of exemptions that you can use when filing for bankruptcy relief. There are exemptions provided by the laws of the State of Minnesota and there are exemptions provided by the bankruptcy code. One exemption that allows you to protect certain assets from liquidation is the wildcard exemption.
What is the wildcard exemption?
When you file for bankruptcy relief, there are several exemptions that apply to specific types of property to prevent liquidation of those assets (e.g. homestead exemption or motor vehicle exemption). The wildcard exemption is a non-specific exemption that you can use to protect one or more assets from among several types of properties. It is a spill-over or catch-all exemption that allows you to retain miscellaneous property for which there may not be a specific exemption. In addition, it can allow you to double up on property. For instance if you own 2 vehicles, you could use the motor vehicle exemption to protect the first vehicle and the wildcard exemption to protect the second vehicle. Alternatively, you could use the wildcard exemption to protect an asset, such as a snowmobile or a boat or a weapon, where there is no specific exemption that can be used to protect it.
When can you use the wildcard exemption?
Because the Minnesota exemption laws do not have a wildcard exemption, a bankruptcy filer can only use the wildcard exemption if one chooses the bankruptcy exemptions provided under the bankruptcy code. The current federal wildcard exemption amount is set at $1,250, but can change based on application. For example, when used in combination with one’s homestead exemption, one may use the federal wildcard exemption amount plus up to $11,850 of one’s unused homestead exemption amount for a total of $13,100. One can use the wildcard exemption on any one item of property or one can split the amount between multiple items of property.
For example: If one owns a car worth $4,000, and one does not owe anything on the car, one’s equity is $4,000. In this case, one could use the motor vehicle exemption of 11 U.S.C. §522(d)(2) to protect $3,775 of this amount and then use part of the wildcard exemption of 11 U.S.C. §522(d)(5) to protect the other $225. Also, if one has a second car worth $5,000, one can use an additional amount of the wildcard exemption of 11 U.S.C. §522(d)(5) to protect it, too.
Why does the wildcard exemption exist?
The bankruptcy exemptions, including the wildcard exemption, were put in place to protect US citizens from irreparable loss and destitution. In the long run, allowing bankrupt individuals to keep assets with which to reorganize will in turn prevent unemployment from growing and keep the economy from falling.
For more information about filing for Chapter 7 bankruptcy in Fairmont, MN, and how exemptions can help you keep your property, contact Behm Law Group, Ltd. at (507) 387-7200.