In legal terms, the word bankruptcy refers to the legal process in which certain debts that belong to a debtor are discharged. This means that the debtor is no longer held liable for repaying those debts. To put it more simply, the debts are erased. Bankruptcy is a process through which individuals or businesses who cannot repay their debts to creditors may find some financial relief. Although initiating the bankruptcy process can vary based on jurisdiction, it is usually imposed by a court order and initiated by the debtor themselves.
There are many different types or chapters of bankruptcy, all of which are governed by federal law. Consumer bankruptcy specifically refers to the type of bankruptcy filed when a person cannot repay their creditors for debts incurred related to personal needs. The two most common types of consumer bankruptcy are Chapter 7 Bankruptcy, and Chapter 13 Bankruptcy. It is helpful to understand the basics of how these bankruptcy chapters work in order to better understand bankruptcy exemptions.
Chapter 7 bankruptcy is also known as liquidation bankruptcy, and allows a person to discharge all debts that may be legally discharged. Once they have filed for a Chapter 7, the court will issue an automatic stay which prevents creditors from attempting to collect on those debts. The majority of the debtor’s property is taken and sold, with the proceeds of the sales paying off as many debts as possible.
Chapter 13 bankruptcy is sometimes referred to as the “wage earner’s bankruptcy.” The debtor is able to restructure their debt in such a way that they are able to make more affordable payments to their creditors. Debtors who have higher incomes, and wish to retain their property, will often choose to file for Chapter 13. Under Chapter 13, some debts may be discharged while others will require payment in full through the use of a payment plan.
What Are Bankruptcy Exemptions? What is Exempt and Non-Exempt Property?
Simply put, a bankruptcy exemption is what allows a debtor who has filed for bankruptcy to keep specific property or assets. This includes after bankruptcy has been filed. Exempt property cannot be seized or sold in order to satisfy any debts. It is important to note that, although bankruptcy as a whole is governed on the federal level, exemptions are determined by state statute. Meaning, what is considered to be exempt property will vary from state to state.
In terms of consumer bankruptcy, exemptions play an important role. Chapter 7 bankruptcy exemptions are used to help determine which property the debtor may keep after the bankruptcy discharge has been issued. Chapter 13 bankruptcy exemptions are used in determining how much the debtor will need to pay their unsecured creditors. This could mean the difference between having their repayment plan confirmed, and getting knocked out of Chapter 13 altogether.
Once again, what property will be considered exempt is going to vary on a state by state basis. Generally speaking, common examples of exempt property include:
- Vehicles, up to a specified value;
- Some jewelry, such as heirloom jewelry, up to a certain value;
- Essentials such as clothing, furniture, and necessary household appliances;
- Tools of the trade or anything necessary for the debtor to continue working;
- Some unpaid wages;
- Pensions; and
- Benefits such as welfare, unemployment, and social security, if those benefits are held in a bank account.
Some general examples of non-exempt property can include:
- Additional vehicles, such as a second car;
- Recreational vehicles, such as RVs and ATVs;
- Second homes;
- Vacation properties;
- Valuables, such as antiques;
- Funds held in a bank account;
- Cash; and
- Securities, such as stocks and bonds.
It is important to note that each state may allow a debtor to choose between either federally-created exemptions, or state-created exemptions. Those created by the federal government are defined in 11 U.S.C. 522. Debtors may only choose one exemption system; meaning, they may not use both state and federal exemptions.
Exemptions in North Dakota
North Dakota debtors may not utilize federal bankruptcy exemptions, and must file under state bankruptcy laws. Some amounts may be higher for married couples filing for bankruptcy together. In order to ensure accurate numbers, debtors in North Dakota should consult with a local bankruptcy attorney. Below is a list of common bankruptcy exemptions in North Dakota:
- Homestead, or Equity in Dwelling Used as Residence: Up to $100,000 in home, trailer, or mobile home;
- Equity in Automobile: Up to $2,900 or $32,000 if the vehicle accommodates a disability.
- Personal Property: Personal property exemptions can be quite extensive and include:
- Up to $5,000 in apparel, and all family/personal clothing;
- Food and fuel to last one year;
- Up to 160 acres of crops and/or grains;
- Bibles, other religious textbooks, school text books, and the family library;
- Burial plots;
- Church pews;
- Family photos; and
- Professional prescribed health aids.
- Tools of the Debtor’s Trade: Up to $1,500 in tools, books, and other implements related to the debtor’s ability to create income;
- Insurance: there are several insurance-related exemptions in North Dakota:
- Insurance proceeds for exempt property;
- Survivor or old age insurance program benefits;
- Fraternal benefit society benefits;
- Most immature life insurance policies;
- Life insurance proceeds that are payable to the estate; and
- Cash value of life insurance policy not to exceed $8,000.
- Pensions and Retirement: This includes tax exempt retirement accounts such as IRAs, ERISA benefits, etc. up to $100,000 each, and not to exceed $200,000 total. This also includes public employee pensions;
- Public Benefits: This encompasses:
- Workers’ compensation;
- Public assistance;
- Social Security;
- Veterans’ benefits; and
- Crime victims’ compensation.
- Alimony and Child Support Payments: In North Dakota, and all other states, a bankruptcy cannot discharge any obligation or overdue payments concerning alimony or child support payments.
- Other Exemptions: Some examples of other North Dakota bankruptcy exemptions include:
- Personal injury recoveries, up to $18,450;
- Wrongful death recoveries, as needed for adequate support; and
- Business partnership property.
- Wildcard: This refers to exemption for personal property of the debtor’s choosing. This can be up to $3,750 in personal property if there is no claim for an exemption for crops; or, up to $7,500 if the debtor is the head of their household. This can also include up to $10,000 in personal property if there is no claim for the homestead exemption.
Do I Need a Bankruptcy Attorney?
There are many factors to consider when determining whether filing for bankruptcy is right for you. Although it is meant to provide a clean financial slate, it is not without its consequences. An example of this would be how it will appear on your credit report for up to ten years, and could cause you to be ineligible for other sources of credit during that time.
If you are considering filing for bankruptcy, you should speak with a North Dakota bankruptcy attorney. An experienced and local bankruptcy attorney can help you determine whether there are alternatives to bankruptcy available to you, and if not, which chapter you should file for. It is important that you consult with a local attorney, as they will be best suited to understanding your state’s laws regarding bankruptcy. They will also have a better understanding of your state’s statutes regarding exempt property.
A bankruptcy attorney can also help you decide what exempt property you should retain. They will file all necessary paperwork and help you through the complicated bankruptcy process. Additionally, an attorney can also represent you in court as needed.