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How do I protect myself from lawsuits, reposessions, and foreclosures

May 11th, 2010    •  by Showell    •   Comments Off on How do I protect myself from lawsuits, reposessions, and foreclosures

An exemption is a certain dollar amount of certain types of property that a borrower is allowed to keep when his creditors are suing him and trying to get their money, or when he files a bankruptcy. These amounts can be very important in determining whether you file bankruptcy, what will happen if you do, and which type you should file. istock_000000290768xsmallExemptions are different in each state. They are listed in the code of laws in a special code section, or law. Think of them as a safety net of things you are allowed to keep, no matter how bad things get, although it is not that simple.

To understand them, you have to understand the collection process. To use a simple example, basically, a borrower has a creditor to whom he owes money. If he does not pay, and the creditor does nothing, then it is merely the borrower’s word against the creditor’s. However, if the creditor sues you, or takes the dispute to court, then the creditor is asking a judge to say that the borrower owes money to the creditor. If the judge sides with the creditor then the judge will sign a court order saying that the borrower definitely owes a certain amount of money to the creditor. This is called a judgment.

A judgment collects interest each year for as long as it is valid, or alive. In SC, judgments exist for 10 years from the date they are entered, or filed at the courthouse, and then expire. In NC, they last for 10 years but can be renewed for 10 more. Actually, a borrower could get a judgment against him in NC for 20 years and THEN it could be moved to SC and be alive for another 10 years, for a total of 30 years! Judgments are liens on any real estate in the county in which they are filed. They can be moved from county to county, state to state, and country to country.

The reason you want a judgment if you are a creditor is that you then use it as a tool to get your money. In some states you can take a person’s wages. This is called garnishment and you cannot do that in SC, unless it is for certain things like child support or taxes. You can garnish wages  in NC for a few things other than credit card debt, but it is a complicated process and is not done extremely often. Creditors also can get the sheriff to sell land or houses if they have a judgment lien filed against them. If the borrower has cars, bank accounts, or other valuable property, someone who has a judgment against the borrower can sell these items or collect his money through the sheriff’s office. This is called executing a judgment.

Creditors also can bring special proceedings if they have a judgment. This is where a creditor makes a person against whom he has a judgment appear in front of a judge and testify and prove what assets the borrower has so the creditor can see if it is worth his trouble to keep going after the borrower’s assets.

Exemptions are important because they say what assets a creditor CANNOT take from a debtor when he is trying to collect a debt. They are important in bankruptcy because if a debtor files a chapter 7 bankruptcy, the chapter 7 bankruptcy trustee cannot sell any of the debtor’s assets which are listed in the bankruptcy paperwork as being exempt. Normally, a debtor claims the exemptions of the state in which he files bankruptcy. However, the new bankruptcy law, which took effect in October 2005, complicates this in that a debtor now has to look back to where the debtor has lived for the 2 years previous to the filing date and, to oversimplify it, the debtor is to claim the exemptions of the state in which he lived during that time frame if that state’s exemptions are applicable. The problem is that most states’ exemptions laws say that they are NOT applicable to people who do not live within that state’s borders. In that case, if you haven’t lived in they state in which you are filing bankruptcy for two years, and the state you last lived in for two year’s exemptions say you cannot use them unless you still live in that state, then you are to use the federal exemptions set forth in 11 U.S.C. Section 522.

The previous oversimplified statement is just that, and you should have an experienced attorney specifically tell you what exemptions you may claim. A very common mistake people make when they handle their own bankruptcies is that they do not claim any exemptions at all, which means that the chapter 7 bankruptcy trustee may take everything the debtor owns and sell it, giving the debtor nothing from the sale proceeds.

A brief and incomplete summary of the South Carolina Exemptions, the North Carolina Exemptions and the Federal Exemptions is as follows:

In SC each debtor may protect (new amounts, effective July 1, 2010) $53,375 of equity in his residence or $5350 cash if you have no residence to protect; a $5350 “wildcard” claim of other assets, if a debtor does not use all of his complete exemption in all other assets. Some of the other exemptions in SC are:  $5350 of equity in one car, all of his ERISA -qualified retirement plan and IRAs, all of his cash value of life insurance in most circumstances, $4275 of equity in his ordinary household goods, $1075 of jewelry and $1600 of tools of trade. This is for one person, so a married couple filing bankruptcy can protect double this. One can see that most people’s assets would be well protected. These numbers will be raised every other year based on a cost-of-living increase, with the most recent increase’s having occurred July 1, 2010.

In NC you can protect $35,000 of  equity in your residence. You can protect $5,000 for any amount of the exemptions you don’t use to protect any other assets to the full extent of the allowed exemptions (a “wild card”).  You are allowed $3500 in a vehicle, $2,000 for tools of trade. Other exemptions are your life insurance, your health aids, any amounts recoverable from a personal injury claim or  a workers comp claim, and any amounts in a 401k/IRA or other ERISA-qualified retirement plan, as well as alimony and child support. you are allowed up to $25,000 in a 529 college savings plan. Finally, you are allowed to protect $5,000 in household goods PLUS $1,000 more for each dependant who lives with you up to $4,000 for dependants (a total of $9000 for household goods).  Again, for a married couple filing a joint bankruptcy, the exemptions are double. These also adequately protect most people filing bankruptcy.

In 11 U.S.C. Section 522, which are the exemptions you can protect which are in the Bankruptcy Code and which you use when you cannot use the exemptions given by the state in which you file bankruptcy, you can protect the following:

$18,450 of value in your residence; $2950 of value in a motor vehicle; $9850 in household goods; $1225 in jewelry; $975 in any other personal property PLUS up to $9250 extra as a “wildcard” which is calculated the same as the above SC and NC wildcards; $1850 tools of trade; life insurance; health aids; social security; unemployment; veteran’s benefits; alimony, maintenance or support; retirement plans that are ERISA-qualified; and wrongful death and personal injury proceeds.

A major difference in the non-bankruptcy use of exemptions in NC and SC is that, in SC you have the exemptions as a matter of right if you don’t file bankruptcy. This means that if someone sues you, gets a judgment and tries to collect it, then the sheriff cannot sell your exempt property. In NC, however, if you are not in bankruptcy, you are sent a notice to CLAIM your exemptions which looks like any other ole’ legal paper to most people. If you do NOT fill out the form in a timely fashion when you get it, YOU DO NOT HAVE ANY EXEMPTIONS. This is a very costly mistake. A copy of the Notice of Right to Claim Exemptions is under the Forms section in pdf format for your REVIEW ONLY (check the current law and forms before you ever file them).

  • Can I go to Jail for not Paying my Bills?

    No, not unless you committed a crime in the creation of the debt (for example, fraud). Simply borrowing money and not being able to pay it back is not a crime. Many creditors representatives will tell you lies on the telephone and say that they will have you put in jail. Perhaps they are too ignorant to know they are wrong or that it is illegal for them even to say that. See More Bankruptcy Q&A