What Assets Are Not Protected by an Exemption When you File for Bankruptcy?

Interviewer: What are the non-exempt items?

There Is a Relatively Low Exemption for Jewelry

Vance: As an example, you have some light jewelry. Your jewelry exemption is only $1,500. If you have a wedding ring that's worth $9,000, the most we can protect is $1,500 of that. The 401Ks and IRAs are totally exempt.

Interviewer: What about back taxes, student loans, and child support? Those are the three main that I've heard.

Student Loans and Past-Due Child Support Are Non-Exempt

Vance: Yes, student loans, we can't do anything with student loans. We can't do anything with past due child support because you can't discharge that in bankruptcy or child support or spousal support.

In a Chapter 13 Bankruptcy, a Property Settlement from a Divorce Is Dischargeable

Now, you're getting into some real fine lines here. If you have a domestic support obligation, you've just divorced and you have a domestic support obligation then you have a property settlement, in a Chapter 13 bankruptcy, that property settlement is dischargeable. But it is not dischargeable in a Chapter 7.

If you have some property and you're supposed to pay your spouse $50,000 as part of a property settlement. You filed a Chapter 13 bankruptcy, she's just an unsecured creditor, just like a credit card and she just gets a few cents on the dollar.

Interviewer: If you really wanted to annoy the ex-spouse, that would be the one way to do it, right?

Vance: Yes, it happens. I had a client and her husband loaned her $15,000 to buy their house, which is in her name alone. In their marriage disillusion, it's stated that was his share of the equity in the house but there was no equity in the house.

In these days, there's little or no equity, so because of the separation agreement, it was listed as a property settlement, we discharged it in bankruptcy. She was very happy.

Married Couples and Bankruptcy

Interviewer: If you are married and you file, do both spouses automatically go bankrupt or just one? What's the different or are there any strategies where one spouse doesn't have to be party to the bankruptcy?

Whether or Not Both Spouses Have to File Depends on How Their Debt Is Structured

Vance: There is a strategy. Now, both spouses do not have to file. It just depends on how the debt is structured. Let's say a married person comes in and all the credit card debt is in one spouse's name, now the house is in both their names but they're current and they could continue making payments on the house.

They can afford it but the one spouse with the credit card debt could file bankruptcy and the other one doesn't have to. They would still keep their house.