When you file an individual bankruptcy case under Chapter 7 or Chapter 13, you are permitted to retain your primary home and personal property with certain exceptions. Such assets or property you keep is referred to as exempt, and a creditor with a judgment against an individual cannot take or seize it to pay off the debt.

Most individuals file either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.  A Chapter 7 bankruptcy is commonly referred to as a “Liquidation” bankruptcy. To be able to file under Chapter 7, you must demonstrate that you do not earn enough income after consideration of specific monthly expenses to repay your debts. This is referred to as the “Chapter 7 Means Test” or the “Means Test.”

In a Chapter 7 bankruptcy non-exempt property is sold to pay your debts. If all of your property is exempt no property will be seized. In return, your unsecured debts are terminated. The term “unsecured debt” refers to debt that is not backed by collateral. The most common example is credit card debt. Mortgages are secured debt and will usually remain after your bankruptcy. In a Chapter 7 bankruptcy case, a trustee is appointed by the Justice Department to administer the bankruptcy estate. This involves reviewing the debtor’s finances, managing the repayment or redemption by the debtor of non-exempt assets, the sale of non-exempt assets, and distributing the proceeds to creditors.

A Chapter 13 bankruptcy is commonly referred to as a “wage earner” bankruptcy. Individuals with regular and reliable income may submit a proposed repayment plan to repay all or some of their debts over a time period of three or five years. Plans are based on income, and the amount and types of debts. In a Chapter 13 bankruptcy case, the trustee performs the same tasks as a Chapter 7 bankruptcy trustee but also manages and reviews the repayment plan. Typically, if a Chapter 13 bankruptcy trustee objects to a repayment plan, the bankruptcy court will not approve the plan.

During the bankruptcy process the trustee may liquidate your non-exempt property to pay off your creditors. If only a portion of the value or equity of the property is non-exempt, you have options. In a Chapter 7 bankruptcy case you must either redeem or repay the non-exempt portion immediately or enter into a short-term payment plan. Otherwise the Chapter 7 Trustee may seize the property and sell the property to pay your creditors. The exempt portion of the proceeds will be paid to the Debtor. In a Chapter 13 bankruptcy case you may repay the value of your non-exempt assets through your repayment plan or surrender the non-exempt property to be sold by your bankruptcy trustee.

The value of the property you may keep in your chapter 7 bankruptcy or chapter 13 bankruptcy is determined by the exemptions you choose use. You may choose to use Federal bankruptcy exemptions or state bankruptcy exemptions. There are advantages to each and the selection should be made based on individual needs.

Federal v. Massachusetts Exemptions & the Homestead Exemption

The Massachusetts bankruptcy exemption for your home or the “homestead exemption” is much larger than the Federal bankruptcy homestead exemption. The “homestead exemption” permits you to protect the equity in your home from creditors. This only protects your interest in a primary residence and does not protect vacation homes or investment properties. If your primary residence is also a multi-unit dwelling, the exemption covers up to a four-unit dwelling. You must live in the home to claim this exemption.

If you file a homestead exemption form in your County’s Registry of Deeds, you may exempt up to $500,000 in equity. Otherwise, the exemption only covers the first $125,000 in equity. The Federal exemption only covers the first $23,675 in equity.

Common Massachusetts Bankruptcy Exemptions

The following is a brief outline of some of the major and most commonly used Massachusetts Bankruptcy Exemptions for personal property or assets:

  • $7,500 – Motor Vehicle
  • $1,225 – Jewelry
  • $15,000 – Household Furniture
  • $5,000 – Tools of Trade
  • $2,500 – Bank Deposits
  • Unlimited – Rights to receive alimony and child support
  • Unlimited – Life Insurance (if the proceeds are payable to a dependent)
  • Unlimited – Most Public benefits and Retirement Account or Benefits. Certain exceptions may apply to contributions to IRAs made prior to the bankruptcy filing.
  • Wildcard Exemption – Up to $1,000 plus $5,000 of the unused portion of your automobile, household furniture, and tools of trade exemptions.

Federal Bankruptcy Exemptions

The following is a brief outline of some of the major Federal Bankruptcy Exemptions for personal property or assets:

  • $3,775 – Motor Vehicle
  • $1,600 – Jewelry
  • $12,625 – Household Goods (furnishings, appliances, clothes, books, animals, crops, musical instruments). No individual item may exceed $600 in value.
  • $2,375 – Tools of the Trade (including implements and books).
  • $12,625 – Life Insurance Policy (loan value).
  • $23,675 – Personal Injury or Medical Malpractice awards with exceptions.
  • $1,283,025 – IRAs and Roth IRAs – Individual Retirement Accounts
  • Unlimited – Retirement Accounts (except IRAs) that are exempt from taxation.
  • Wildcard Exemption –
    • $1,250 plus $11,850 of any unused portion of your homestead exemption
    • The wildcard exemption may be applied to any property you own, and maybe used to avoid repaying the non-exempt equity in the property listed above.

There is no need to dip into savings. Being proactive with bankruptcy may protect your personal assets such as your home, car, and retirement accounts from your creditors.

If you have further questions about filing bankruptcy in Massachusetts, please contact the Law Offices of James Benjamin at 617-431-8071, or visit www.jbenjaminlaw.com/bankruptcy to learn if bankruptcy is right for you.

WARNING: THIS POST IS AN ADVERTISEMENT FOR THE LAW OFFICES OF JAMES BENJAMIN. THE INFORMATION CONTAINED HEREIN DOES NOT CREATE AN ATTORNEY CLIENT RELATIONSHIP AND SHOULD NOT BE RELIED ON AS FORMAL LEGAL ADVICE.

DEBT RELIEF AGENCY – THE LAW OFFICES OF JAMES BENJAMIN IS A FEDERALLY RECOGNIZED DEBT RELIEF AGENCY THAT OFFERS LEGAL REPRESENTATION UNDER THE UNITED STATES BANKRUPTCY CODE.

If you are an owner of a failing or closed business and have incurred significant debts that you are now unable to repay you should be aware of an exception to the income eligibility rules for filing bankruptcy.  Many business owners take out commercial or business loans to purchase vehicles, equipment, obtain inventory and supplies, or pay day to day office expenses. These debts are treated differently than consumer debts when determining your eligibility for filing bankruptcy. You may be able to discharge or terminate your obligation to repay such business debts without making any payments.

When you file for bankruptcy you are permitted to retain property required for everyday living. A reasonable home, furnishings, vehicle(s), clothing, retirement savings and other items are not subject to sale under this process. If you have property that is not fully exempt due to its value, you may need to repay a portion of the value to your creditors in order to keep the asset.

The vast majority of individuals file either a Chapter 7 bankruptcy or Chapter 13 bankruptcy. If you file a Chapter 13 bankruptcy case you must submit a repayment plan based on your available income after paying living expenses and debts including mortgages, car payments, student loans, back taxes, and other similar obligations. A Chapter 7 bankruptcy case does not involve a long-term repayment plan. When you file a Chapter 7 bankruptcy your unsecured and secured debt with some exceptions is discharged or terminated, and your secured creditors may only collect against collateral. There is no repayment plan based on your income.

To file a Chapter 7 bankruptcy, you must pass a means test demonstrating you do not earn enough income after consideration of specific monthly expenses to repay your debts. If your household income is below your state’s median household income over the past six months you typically pass this test. If you make more than your state’s median income, expenses such as housing, automobiles, utilities, student loans, tax payments, alimony or spousal support, child support, child care, health care, and other essentials are considered to determine if you have disposable income available to pay back your creditors.

In the Commonwealth of Massachusetts, the median household income standards as of April 30, 2018, are as follows:

1 Member – $62,660
2 Member – $80,180
3 Member – $98,758
4 Member – $123,864

If your annual household income is below the standard, you are likely eligible for a Chapter 7 bankruptcy that will not require a repayment plan. If your income is greater, you may still be eligible for a Chapter 7 bankruptcy after consideration of your monthly expenses.

If you have available income each month to repay creditors, you may need to file a Chapter 13 bankruptcy. This is typically called a “repayment” bankruptcy. You submit a proposed repayment plan to repay all or some of your debts over a period of three or five years. Plans are based on income, and the amount and types of debts. There are benefits to a Chapter 13 bankruptcy as repayment plans allow for the payment of back taxes and past due mortgages or car payments to avoid foreclosure or repossession.

There is an exception to the rule requiring a means test if your debts are primarily related to a business. The means test only applies when the majority of debts are consumer debts. The Bankruptcy Code defines consumer debt as “debt incurred by an individual primarily for a personal, family, or household purpose.” See 11 U.S.C. § 101(8). If your debts are primarily commercial in nature, you may be exempt from the means test referenced above. If some of the business debt could potentially be identified as consumer debt, a debtor will need to be able to show evidence that the obligation was incurred for commercial purposes. The courts, the Justice Department, and trustees look closely at debts classified as business or non-consumer debt. If you have a business loan from a bank or an auto loan on a commercial vehicle this may be obvious. If you have incurred credit card debt on behalf of the business, this may require further review.

If you are struggling as a result of debts associated with your business, you may be able to discharge or terminate these debts without a repayment plan. If you are considering filing for bankruptcy in Massachusetts and wish to speak an experienced bankruptcy attorney, please contact my office at 617-431-8071 to schedule a consultation.

WARNING: THIS POST IS AN ADVERTISEMENT FOR THE LAW OFFICES OF JAMES BENJAMIN. THE INFORMATION CONTAINED HEREIN DOES NOT CREATE AN ATTORNEY CLIENT RELATIONSHIP AND SHOULD NOT BE RELIED ON AS FORMAL LEGAL ADVICE.

DEBT RELIEF AGENCY – THE LAW OFFICES OF JAMES BENJAMIN IS A FEDERALLY RECOGNIZED DEBT RELIEF AGENCY THAT OFFERS LEGAL REPRESENTATION UNDER THE UNITED STATES BANKRUPTCY CODE.

Are you only able to pay the minimum payments on your credit cards?

If you are eligible for Chapter 7 bankruptcy you may be able to discharge or terminate these debts, without paying any money back. If not, Chapter 13 bankruptcy permits you to enter into a payment plan and stop the accrual of interest and penalties.

Has your car been repossessed?

You may owe money to the bank or leasing company, and may be subject to a lawsuit and/or wage garnishment. Bankruptcy protects you, and you may even be able to get your car back and seek a loan modification.

Has your bank or mortgage company threatened you with foreclosure?

Bankruptcy temporarily stops the foreclosure process and may provide you with additional time to negotiate a loan modification or in some limited circumstances get rid of a home equity line of credit.

Are you being threatened or sued by a creditor for failure to pay?

Depending on your income and expenses, bankruptcy may eliminate or reduce the amount of money you owe.

Do you owe back taxes? 

Before discussing a payment plan with Internal Revenue Service you should find out if the taxes you owe can be discharged through bankruptcy.

Are you living paycheck to paycheck due to overspending and credit card debt?

It may take many years to pay off all of your debts. Depending on your income, bankruptcy may provide you with a clean slate or the ability to consolidate your debts without paying interest and penalties.

Are you the owner of a struggling business that may be forced to close soon?

There is no need to dip further into savings. Being proactive with bankruptcy will protect personal assets such as your home, car, and retirement accounts from creditors.

Taking the First Step

If you wish to explore filing for bankruptcy in Massachusetts, please contact the Law Offices of James Benjamin at 617-431-8071, or visit www.jbenjaminlaw.com/bankruptcy to learn if bankruptcy is right for you.

WARNING: THIS POST IS AN ADVERTISEMENT FOR THE LAW OFFICES OF JAMES BENJAMIN. THE INFORMATION CONTAINED HEREIN DOES NOT CREATE AN ATTORNEY CLIENT RELATIONSHIP AND SHOULD NOT BE RELIED ON AS FORMAL LEGAL ADVICE.

DEBT RELIEF AGENCY – THE LAW OFFICES OF JAMES BENJAMIN IS A FEDERALLY RECOGNIZED DEBT RELIEF AGENCY THAT OFFERS LEGAL REPRESENTATION UNDER THE UNITED STATES BANKRUPTCY CODE.