Otherwise, the Chapter 11 debtor will use the future revenue. What property is protected or exempt in a bankruptcy case? This is a surprisingly broad question, and it depends on what state you live in, even though bankruptcy is governed by federal law. Dec 23, · Seeing as so many employees, investors and users of corporations’ services have a lot riding on their survival, the failure of these companies and subsequent bankruptcy applications tends to draw the ire of the general public more than any other form of bankruptcy, some of whom regard Chapter 11 largely as a symbol of corporate greed and incompetence. Subsection (b) tracks current law. It permits a debtor the exemptions to which he is entitled under other Federal law and the law of the State of his domicile. Some of the items that may be exempted under Federal laws other than title 11 include: Foreign Service Retirement and Disability payments, 22 U.S.C. ;  Replaced by.
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Railroad Retirement Act annuities and pensions, 45 U. Veterans benefits , 45 U. Special pensions paid to winners of the Congressional Medal of Honor, 38 U. Federal homestead lands on debts contracted before issuance of the patent, 43 U. He may also exempt an interest in property in which the debtor had an interest as a tenant by the entirety or joint tenant to the extent that interest would have been exempt from process under applicable nonbankruptcy law.
Under proposed section , all property of the debtor becomes property of the estate, but the debtor is permitted to exempt certain property from property of the estate under this section. As under current law, the debtor will be permitted to convert nonexempt property into exempt property before filing a bankruptcy petition.
The practice is not fraudulent as to creditors, and permits the debtor to make full use of the exemptions to which he is entitled under the law. Subsection c insulates exempt property from prepetition claims other than tax claims whether or not dischargeable , and other than alimony, maintenance, or support claims that are excepted from discharge. The bankruptcy discharge does not prevent enforcement of valid liens.
The rule of Long v. Bullard, U. Louisville Joint Stock Land Bank v. Radford, U. Subsection c 3 permits the collection of dischargeable taxes from exempt assets. Only assets exempted from levy under Section of the Internal Revenue Code [title 26] or under applicable state or local tax law cannot be applied to satisfy these tax claims.
This rule applies to prepetition tax claims against the debtor regardless of whether the claims do or do not receive priority and whether they are dischargeable or nondischargeable. The debtor may avoid a judicial lien on any property to the extent that the property could have been exempted in the absence of the lien, and may similarly avoid a nonpurchase-money security interest in certain household and personal goods.
The avoiding power is independent of any waiver of exemptions. The debtor is also permitted to exempt property that the trustee recovers as the result of the avoiding of the fixing of certain security interests to the extent that the debtor could otherwise have exempted the property. Subsection g provides that if the trustee does not exercise an avoiding power to recover a transfer of property that would be exempt, the debtor may exercise it and exempt the property, if the transfer was involuntary and the debtor did not conceal the property.
If the debtor wishes to preserve his right to pursue any action under this provision, then he must intervene in any action brought by the trustee based on the same cause of action. It is not intended that the debtor be given an additional opportunity to avoid a transfer or that the transferee should have to defend the same action twice. Rather, the section is primarily designed to give the debtor the rights the trustee could have, but has not, pursued.
These subsections are cumulative. The debtor is not required to choose which he will use to gain an exemption. Subsection h permits recovery by the debtor of property transferred by an avoided transfer from either the initial or subsequent transferees. It also permits preserving a transfer for the benefit of the debtor. In either event, the debtor may exempt the property recovered or preserved. Subsection i makes clear that the debtor may exempt property under the avoiding subsections f and h only to the extent he has exempted less property than allowed under subsection b.
Subsection k requires the debtor to file a list of property that he claims as exempt from property of the estate. Absent an objection to the list, the property is exempted. A dependent of the debtor may file it and thus be protected if the debtor fails to file the list. Subsection b , the operative subsection of this section, is a significant departure from present law. It permits an individual debtor in a bankruptcy case a choice between exemption systems. The debtor may choose the Federal exemptions prescribed in subsection d , or he may choose the exemptions to which he is entitled under other Federal law and the law of the State of his domicile.
If the debtor chooses the latter, some of the items that may be exempted under other Federal laws include:. Under proposed 11 U. This follows current law. The remaining value of the property will be dealt with in the bankruptcy case as is any interest in property that is subject to a lien. See Hearings, pt. The practice is not fraudulent as to creditors and permits the debtor to make full use of the exemptions to which he is entitled under the law.
Subsection c insulates exempt property from prepetition claims, except tax and alimony, maintenance, or support claims that are excepted from discharge. The bankruptcy discharge will not prevent enforcement of valid liens. Subsection d specifies the Federal exemptions to which the debtor is entitled.
Eleven categories of property are exempted. Third, the debtor may exempt household goods , furnishings, clothing, and similar household items, held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.
Paragraph 7 exempts a life insurance contract, other than a credit life insurance contract, owned by the debtor. This paragraph refers to the life insurance contract itself.
It does not encompass any other rights under the contract, such as the right to borrow out the loan value. Because of this provision, the trustee may not surrender a life insurance contract, which remains property of the debtor if he chooses the Federal exemptions. A trustee is authorized to collect the entire loan value on every life insurance policy owned by the debtor as property of the estate. First, however, the debtor will choose which policy or policies under which the loan value will be exempted.
Paragraph 9 exempts professionally prescribed health aids. Paragraph 10 exempts certain benefits that are akin to future earnings of the debtor. Paragraph 11 allows the debtor to exempt certain compensation for losses.
This provision in subparagraph D 11 is designed to cover payments in compensation of actual bodily injury, such as the loss of a limb, and is not intended to include the attendant costs that accompany such a loss, such as medical payments, pain and suffering, or loss of earnings. Those items are handled separately by the bill. If the trustee does not pursue an avoiding power to recover a transfer of property that would be exempt, the debtor may pursue it and exempt the property, if the transfer was involuntary and the debtor did not conceal the property.
If the debtor wishes to preserve his right to pursue an action under this provision, then he must intervene in any action brought by the trustee based on the same cause of action. It is not intended that the debtor be given an additional opportunity to avoid a transfer or that the transferee have to defend the same action twice.
Rather, the section is primarily designed to give the debtor the rights the trustee could have pursued if the trustee chooses not to pursue them.
Subsection i permits recovery by the debtor of property transferred in an avoided transfer from either the initial or subsequent transferees.
Under either case the debtor may exempt the property recovered or preserved. Subsection l requires the debtor to file a list of property that he claims as exempt from property of the estate. Subsection m requires the clerk of the bankruptcy court to give notice of any exemptions claimed under subsection l , in order that parties in interest may have an opportunity to object to the claim.
Subsection n provides the rule for a joint case: each debtor is entitled to the Federal exemptions provided under this section or to the State exemptions, whichever the debtor chooses.
It all comes down to what we call "exemptions" or "exempt property. When an individual or a married couple files a bankruptcy case, they are not required to turn over all they own to the court and creditors. They are allowed to keep a certain amount of property from the reach of those creditors. The assets a debtor keeps are known as exempt property.
The exempt property will include some amount of equity in real property, like the family home, personal property like furniture, clothing, kitchen items, one or more vehicles, tools used in a trade or profession, some amount of current wages, child support and alimony , and other support benefits, and other items.
Only individuals can have exempt property. The assets of a corporation filing Chapter 7 bankruptcy will be liquidated in full. The assets of a corporation filing a Chapter 11 reorganization will generally not be liquidated unless the corporation chooses to do so to fund a reorganization plan.
Otherwise, the Chapter 11 debtor will use the future revenue. This is a surprisingly broad question, and it depends on what state you live in, even though bankruptcy is governed by federal law. It can also depend on how long you have lived in that state.
Each state has a different scheme and allow their residents to exempt different types of property in varying amounts.
For instance, in some states like Texas, under certain circumstances you can exempt all of the equity in your house, even if it's a million dollar mansion.