Will Someone Be Checking On My Exemptions?
The answer to that question depends on what the exemption is that you’re claiming. Let’s say you’re in a Chapter 7 and you exempt your clothing. No one is going to be looking at your clothes to see if you’re entitled to an unlimited clothing exemption. The same goes for your household goods and furnishings; unless that little table that you have happens to be the table on which Marie Antoinette wrote her last will and testament before she was guillotined. If that were the case, you wouldn’t just have a household good; you’d have a rare artifact. For the most part, no one is going to be checking up on your exemptions unless it’s a more expensive item, something that could be challenged, such as a motor vehicle or real estate.
Let’s say, for argument’s sake, you’re exempting your car, which would depend on which table we’re working with. If we’re in the homeowner’s table, it’s really quite stingy—only $3,325 on the equity, which is spread out over all of the cars that you have. We take the market value of the car or cars (according to Kelley Blue Book), and subtract the amount you still owe. What’s left over is the equity. If you’re claiming that car is worth $500 and that’s why you’re able to exempt it, a Trustee might poke around a little. On occasion, I’ve seen the Trustee ask for photographs of the car or of the odometer.
The renter’s table offers a bit more flexibility in exempting motor vehicles. First of all, the motor vehicle exemption starts at a higher value: $5,850. Because renters don’t have equity in their principal residence, the renter’s table also has something called a wildcard exemption, which gives you $30,825 worth of exempting power — in addition to all of the other exemptions — that you get to use either to supplement other exemptions, or to exempt something that doesn’t seem to fit into any category. Let’s say you have $10,000 worth of motor vehicle equity. You’d protect part of it using the $5,850 car exemption, and then dip into your wildcard pot and grab enough to protect the rest of the equity. Of course, in the process, you’d partially deplete the wildcard, but you’d protect the cars. Things that you absolutely have to use the wildcard for are money in the bank, stocks, bonds, and cash on hand. But if you’re a good candidate for a Chapter 7 bankruptcy, the chances are you’ll be able to protect everything, especially if you’re not a homeowner.
There is no wildcard exemption in the homeowner’s table though, so that is the tradeoff. Yes, there’s very generous equity in your principal residence exemption, but in exchange for that, you get no wildcard, which makes exempting other things in the homeowner’s table a bit more challenging.
When it comes to home exemptions, most Trustees use online services to check up on your claim. Let’s say you file a Chapter 7. The Trustee will get your name and social security number, and enter them into various search engines to find all of the real estate and motor vehicles you’ve been on title to in the last several years. How much you paid for your house, if you’re a homeowner, will come up. The Trustee will then search for the current market value of your house using a tool like Zillow, which is free. Though Zillow tends to highball things a bit, at least it’s a starting point. If you bought your house in 1985 for $50,000 and Zillow says it’s now worth $2 million, the Trustee might look further into your claim that you get to exempt all of your equity with a $600,000 equity exemption. Trustees generally only poke around to challenge big ticket items like houses and multiple motor vehicles.
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