What property can be protected in bankruptcy in Massachusetts?
The answer to that involves bankruptcy exemptions. Many people think that they will lose everything if they file for bankruptcy. This is not true because the law allows you to keep what you need to get back on your feet.
Exempting assets is one of the most important considerations before filing for bankruptcy. Debtors are able to exempt, or protect, many assets from the bankruptcy process. Debtors can choose from the Massachusetts exemptions or the federal exemptions, but they cannot mix and match between the two schemes. There are exemptions up to a specified value for a vehicle, house, household goods and furnishings, clothing, tools of trade, cash, retirement assets, and miscellaneous assets. For assets with secured debts, such as a house or car, a debtor only has to exempt the equity in the asset and not the entire fair market value of the asset. For example, if the car is worth $10,000 and the car loan balance is $7,000, then only $3,000 has to be exempted.
When valuing an asset, the debtor and attorney use a distressed asset value, which is less than the fair market value. If done properly, rarely is exempting an asset an issue. Massachusetts provides a minimum of $125,000 for a homestead exemption (and up to $500,000 if a declaration of homestead is recorded), and the personal property exemptions are usually sufficient to cover the remainder of your assets. Retirement accounts are almost always fully protected. Additionally, in a Chapter 13 filing, non-exempt assets are not surrendered if the plan provides a sufficient monthly payment. Because of the complexity of this issue, it is important to consult a bankruptcy attorney.