When faced with the prospect of bankruptcy, you want reassurance, knowing what will happen with your property. In an overwhelming majority of Chapter 7 bankruptcies, the person filing retains all of his or her property, including house and vehicle. In Nebraska, there are laws called exemptions that you can use to protect your real and personal property in a Chapter 7 bankruptcy.
For Nebraska exemption laws, changes are on the way. In early February 2018, the Nebraska Unicameral passed Legislative Bill 105 by a vote of 47-0, which significantly changes exemption laws (Nebraska Revised Statutes 25-1552 and 25-1556). The bill is waiting on the governor’s signature to be made law. In a three part series, I will discuss the exemptions as they are now and the presumed impact of the new law.
In Nebraska, the homestead exemption allows the person filing the Chapter 7 bankruptcy to protect up to $60,000 of equity in his or her primary residence (Neb. Rev. Stat. § 40-101). It also allows for the protection of up to $60,000 of sales proceeds from the sale of the primary residence for a period six months as long as those proceeds are not commingled (Neb. Rev. Stat. §§ 40-113, 40-116). In short, most individuals filing for Chapter 7 bankruptcy retain their homes because all of the equity is protected. The new law does not impact the homestead exemption.
Example 1: Your primary residence is worth $150,000 with a mortgage owed of $100,000, meaning you have $50,000 of equity. You are able to protect your home because the homestead exemption allows you to protect equity in your home up to $60,000. If this were, however, a rental property that you do not live in, you would not be able to protect the home using the homestead exemption.
Example 2: The sale of your primary residence closes on February 28, 2018. From the sale, you receive net proceeds of $40,000. Instead of using those funds to purchase a new home, you deposit them into an account where no other funds get deposited. You file Chapter 7 bankruptcy three months later. You are able to exempt the entire $40,000. If you deposited that money into an account where you also have your paycheck deposited, you would not be able to protect those funds with the homestead exemption.
In Nebraska, there is currently no specific vehicle exemption. In order to protect your vehicle, you have to use a combination of the “tools of trade” exemption (Neb. Rev. Stat. § 25-1556(4)) and the ”wild card” exemption (Neb. Rev. Stat. § 25-1552). The tools-of-trade exemption allows you to protect up to $2,400 of equity and the wild card exemption allows you to protect up to $2,500 of equity. If you are filing with your spouse, you each have available your own exemption. In order to utilize the tools of trade exemption on your vehicle, you must use the vehicle as work transportation or in your business.
Example 1: Your truck is worth $10,000 with a vehicle loan owed of $8,000, meaning you have $2,000 of equity. If you use the truck as transportation for work, you can protect the $2,000 of equity because the tools-of-trade exemption allows you to protect equity up to $2,400.
Once the new exemption law goes into effect, there will be a vehicle specific exemption where you can protect up to $5,000 in a vehicle. Gone is the requirement that the vehicle be used as work transportation or in your business. This significantly benefits the elderly and disabled who do not work or run a business. Additionally, the wild card exemption has doubled from $2,500 to $5,000. The wild card exemption can be used on any personal property. If you are filing with your spouse, you each have available your own separate vehicle and wild card exemptions.
Example 2: Now let’s say your truck is worth $18,000 with a loan owed of $8,000. With equity of $10,000, you’d lose your vehicle under the current law because you’d only be able to protect $4,900 of the equity. However, under the new law you’d be able to protect your vehicle because you’ll have $10,000 worth of exemptions ($5,000 vehicle exemption and $5,000 wild card exemption).
Rest assured that you most likely will be able to protect and retain all of your property. The trustee, the person assigned to liquidate assets in a Chapter 7 bankruptcy, most often cannot claim any property because you are able to exempt or protect it. However, each situation is unique. At Koenig│Dunne, one of our experienced bankruptcy attorneys will review your assets and inform you how to protect your assets through a bankruptcy.