There are A LOT of misconceptions about what happens when a person files for bankruptcy relief. One of the most common misconceptions is that you lose all of your property when you file for bankruptcy.
THIS IS ABSOLUTELY UNTRUE! In fact, most clients are able to keep all of their property when filing for bankruptcy!
Clients who file for bankruptcy are afforded bankruptcy “exemptions” that are used to protect their property (so that a bankruptcy trustee cannot look to sell the property to get money to pay out to all of the creditors whose debts are getting wiped out).
You must also keep in mind that when putting a monetary value on your property in a bankruptcy case, we use the “current market value” and NOT the retail price you paid for your property. Generally speaking, the current market value of your property is akin to how much you could realistically get for it if you had a yard sale.
Individual bankruptcy filers are afforded a $1,000.00 “personal property exemption” to cover their personal property (furniture, clothes, etc.) Married couples filing for bankruptcy are afforded a $2,000.00 personal property exemption. This is afforded by Fla. Const. art. X §4(a)(2) (See below).
In addition to the personal property exemptions, bankruptcy filers (who are not claiming a homestead exemption in a home they own) can also use the Florida “wildcard exemption” to cover their personal property. Individual filers are given a $4,000.00 wildcard exemption and joint filers are given a $8,000.00 wildcard exemption. This is afforded by Fla. Stat. Ann. §222.25(4) (See below).
So as an example, a couple filing a joint bankruptcy who does not also own a home is afforded up to $10,000.00 worth of exemptions to cover their property.
In the event clients own property that is worth more than what the exemptions can cover, we can usually “strike a deal” with the bankruptcy trustee wherein, in exchange for the client agreeing to pay the trustee their amount of excess equity in their property (i.e. that amount by which the yard sale value of their things exceeds the available exemptions), the trustee agrees that the clients can keep the property and receive their bankruptcy discharge (i.e. the order which wipes out the debts which have been holding them down).
Fla. Const. art. X §4(a)(2)
SECTION 4. Homestead; exemptions.—
(a) There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person:
(1) a homestead, if located outside a municipality, to the extent of one hundred sixty acres of contiguous land and improvements thereon, which shall not be reduced without the owner’s consent by reason of subsequent inclusion in a municipality; or if located within a municipality, to the extent of one-half acre of contiguous land, upon which the exemption shall be limited to the residence of the owner or the owner’s family;
(2) personal property to the value of one thousand dollars
Fla. Stat. Ann. §222.25(4)
Other individual property of natural persons exempt from legal process.—
The following property is exempt from attachment, garnishment, or other legal process:
(4) A debtor’s interest in personal property, not to exceed $4,000, if the debtor does not claim or receive the benefits of a homestead exemption under s. 4, Art. X of the State Constitution. This exemption does not apply to a debt owed for child support or spousal support.