Dan Freund, Eau Claire bankruptcy lawyer

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possessionsThis page contains general information. Contact a WBG attorney for specific advice.

Because we don’t want folks walking around in barrels, the law allows people to keep “exempt” property even if they file a bankruptcy. (Did you notice that I said “people” in that sentence? Corporations, limited liability companies, and partnerships cannot exempt property.) Exemptions apply to equity, the value of an asset over and above any mortgages or liens. One big exception to this rule is the homestead exemption, which trumps most judgment liens.

But what property is exempt? In Wisconsin, people filing bankruptcy can select from one of two lists, a state list or a federal list. We don’t have the space to get into detail here, but examples of property a person can exempt under Wisconsin state law include a homestead (up to $75,000 equity), money in a personal bank account (up to $5,000), a motor vehicle and household goods (up to $16,000), and almost all retirement accounts.

After that it gets more complicated. Consider this: John and Jane both owe $50,000 in credit card bills they cannot pay. John has a home with $15,000 equity. Jane has $15,000 in the bank. They both file for bankruptcy. What happens? John keeps his home and Jane loses $10,000. That doesn’t sound right.

As it turns out, the law allows Jane to arrange her assets to maximize her exemptions. This is called “exemption planning.” Like tax planning, which permits avoidance but not evasion, exemption planning must follow the rules. Some of the rules are simple. These include (1) don’t give away assets, (2) don’t hide assets, and (3) don’t use assets to pay debts owed to friends and relatives.

But most of the rules are complex. One example: Remember that a person filing a bankruptcy can choose from the Wisconsin exemption list or an entirely separate federal exemption list? Picking which list to use depends on each person’s particular assets when the planning begins.

Doing exemption planning is like moving pieces on a chess board. Without careful planning a move designed to protect one asset may leave another asset at risk. Or, in a worst case scenario, a person could lose all exemptions. So you should have the help of an experienced debt relief attorney if you need to do exemption planning.

More bankruptcy questions? Check our our FAQ page.

This page contains general information. Contact a WBG attorney for specific advice.
Wisconsin Bankruptcy Guide is provided by law firms designated as Debt Relief Agencies by the federal government because we help people file for relief under the Bankruptcy Code. We also provide other types of debt relief options.

Image credit: flickr/Frits Ahlefeldt-Laurvig

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