Tag Archives: Exemptions

Exempt property

What if the Trustee Wants My STUFF?

I explain to my clients that a Chapter 7 Bankruptcy is a deal. If you (the debtor) have any non-exempt property of any value that the Trustee wants, the Trustee is entitled to it; and my clients are expected to put it on the front porch, with a red bow on it and invite the Trustee in for a celebratory drink when he comes by to pick it up. Why? Because, in exchange for whatever non-exempt property the Trustee chooses to administer, you get out of that pile of debt that drove you to my office in the first place. That’s the deal, and if that deal isn’t worth doing – then, don’t file. Bankruptcy is the old Pearl of Great Price story told in a different setting.

Sound harsh? It really isn’t. I practice exclusively in Oklahoma, and Oklahoma has very generous exemptions. Remember, the deal is only for non-exempt property and most of what we own is exempt in Oklahoma. The vast majority of all people who file for Bankruptcy in Oklahoma have no non-exempt property of any real value; and when they do there are generally enough legitimate pre-bankruptcy planning techniques to protect those assets.

Sure, occasionally, a client loses something. They always know the risks. We go over that extensively and in great detail. Sometimes, though, when going over the possibilities, I can’t quite get past the, “BUT THAT’S MINE” response.

So, here is the story I tell. I had a client who had a $2,000 red toolbox. It held specialized tools that really didn’t qualify as household goods (which are exempt), and they were from a former career, so they didn’t qualify as tools of the trade (which are also exempt), but the toolbox was red, and it was really spiffy. Client loved this toolbox, and he really didn’t want to think about any mean, old Trustee taking it. Now, this client also had over $70,000 in unsecured debt that he needed to get out of.

So, I asked him. “If someone offered you $70,000 for that tool box, would you take it?” He looked at me like I was crazy. Seventy grand for a $2,000 tool box? Well, of course, he would take it. That is a fabulous deal! Then his brain made the connection, and the previous look of worried panic turned into a grin.

Turns out his Trustee wasn’t nearly as impressed by that toolbox as the debtor was, and the debtor wound up getting out of the $70,000 in debt and keeping the toolbox; but I have used this story (details have been changed, of course) for years.

So, first of all, remember that most people who file for bankruptcy in Oklahoma lose no assets. Just about everything that any of us owns of any real value is exempt if you are using Oklahoma exemptions, but even if you do own something that isn’t exempt – is it worth a discharge of all of your debt? If yes, then congratulations on driving such a great bargain – $70,000 in debt in exchange for a shiny, red toolbox. If, on the other hand, it isn’t the best deal you’ve had in a long time; then, talk to your lawyer about other options. Remember, you always have choices; and it is your lawyer’s job to help you find them.

Elaine

Bankruptcy, States and Exemptions

It used to be simple.  If you lived in Oklahoma there was a certain list of property that you could claim as exempt (meaning that nobody can take it away from you as long as you have paid for it and paid your taxes).  It didn’t matter if you were filing for Bankruptcy.  It didn’t matter if you were not filing for Bankruptcy, but you had judgment creditors trying to get paid.  It didn’t matter how long you had lived here, what phase the moon was in, how much the property was worth, how much you owed on it or much of anything except total acreage and business usage.  Those were the good old days.

I have now talked to two people in two days who have both moved here from California in the last two years.  They both need to file for Bankruptcy.  Now, what makes both of these stories really entertaining is that they both have very little equity (if any) in their homestead; but they both have other property that they could not claim as exempt in Oklahoma.

Riding to the rescue?  The California homestead/wild card exemption!  Say, what?  The California homestead exemption SUCKS!  It protects a very small amount of value.  Own a house with $100,000 in equity?  In California you are screwed.  In Oklahoma — no problem.  However, cash in the bank, real estate other than your homestead — these are problems in Oklahoma.  Not in California where a Debtor can use a wild card exemption in lieu of a homestead exemption.  That means you can protect a certain dollar figure of property — regardless of what kind of property it is.  Voila!  Money in the bank?  No problem.  Real estate that isn’t homestead?  Taken care of.

Of course, the really fun part of using another State’s exemptions is that the Trustees don’t get it.  They probably should be seeing this fairly often under the new Act.  From the looks I get from Trustees, they aren’t seeing other exemptions much at all.

I will never forget the first time I used a wild card exemption (which we don’t have in Oklahoma) to protect an unreceived tax refund from a Bankruptcy Trustee.  It was early in 2006.  The 2005 amendments (including the choice of law provisions for exemption statutes) were brand new.  I had to explain it.  The Trustee looked at me like I had snatched food from his starving jaws and then slapped him.  It is one of my most cherished memories of practice.

Elaine