“What will they take?”
When you file a Chapter 7 bankruptcy, the Chapter 7 trustee can take and sell your non-exempt assets. (The proceeds are used to pay your creditors.)
Most people don’t have “non-exempt” assets, so the trustee doesn’t take and sell anything. But that happy result often requires careful planning and detailed knowledge of exemption law.
Will they take my house?
During the real estate crisis, most people in Northern Virginia lost any equity they had in their real estate. In bankruptcy, bad is often good. Having no equity is often good, because Virginia is right at the bottom of the real estate equity you can keep.
Your Virginia “homestead” exemption is $5000.00. That’s found in Code of Virginia 34-4. That compares unfavorably to 100 acres of Texas, Or 160 acres of Florida. If the bankruptcy trustee can take and sell your house, give you $5000, and have money left over to pay your creditors, that’s what he is supposed to do.
Now Virginia does provide much better protection for married couples. Under “tenancy by entirety,” real estate that belongs to a married couple cannot be taken for the debts of only one. So a married couple can protect unlimited real estate equity, as long as they are not joint on credit cards or other debts.
What about my car? Or my truck? My tools?
Most places, you can’t get to work without a car. Many people owe more on their cars than it’s worth. But for those whose car is paid for, or almost paid for, Virginia law allows you to protect $6,000 equity in your car.
Some people can also claim “tool of the trade” protection for a vehicle. If you are cab driver, your car is a tool of your trade. If you are a painter, then your truck, along with your ladders and brushes, are your tools. Virginia has a $10,000 exemption for tools.
The Virginia exemptions for cars and tools are pretty good, compared to many other states.
You are allowed to exempt most of your stuff. Your pets, your wedding and engagements rings, and your family bible.
Clothing up to $1000. Household furnishings, $5000. I’ve never seen a bankruptcy trustee be interested in people’s normal clothing–you’d have to sell a lot of it at yard sale prices to get to $1000. Somebody with a lot of electronics might have more than $5000 in household furnishings. In Northern Virginia, where I am, the bankruptcy trustees don’t have time to mess with that. In more rural parts of the state, I’ve sometimes heard of it.
One firearm, $3000. That was added in July 2011.
What about money in the bank, retirements, places where there’s money?
Your retirement funds–401(k), 403(b), 457, IRA’s–are all exempt under Federal bankruptcy law and also the Code of Virginia. Virginia also exempts the retirements of state and local government employees.
The thrift savings plans of federal employees are protected by Federal law.
What about money in the bank?
The protection for your money in the bank depends on where it came from.
Your “wages’–including commission, bonus, almost anything–is three quarters exempt under Virginia law. That protection follows the money when it hits your bank account–as long as you can trace it. Having direct deposit really helps with that tracing.
Your Social Security is exempt, and keeps that exemption when it hits your bank.
Disability payments are protected under Virginia law exempting sickness insurance.
Money you receive as a result of a personal injury, typically a car accident, is exempt in Virginia.
If you have cash or investments that don’t fall into any of these categories, you can use that Virginia $5000 “homestead” if you don’t need it to cover your real estate equity. If you have cash value life insurance, you need to use that homestead exemption to protect that.
College Savings plans
Money that’s been in a 529 college savings plan for your child or grandchild (not yourself) is exempt if it’s been there for more than two years. If it’s been there for more than one but less than two years, $5000 is exempt.
However, Virginia gives better protection for money in the Virginia 529 Plan–the specific 529 set up by the Commonwealth of Virginia. There’s no waiting period for the exemption to take effect under the law for the Virginia 529 plan.
PS: My mom “put my name on” her bank account
Under Virginia law, money in the bank belongs to the person who put it in. (Except husband and wife are 50-50.) So if mom put the money in, then it’s still protected, even if mom put your name on the account. (Now if mom is giving you the money, that would be a different story.)