Many people operate under the myth that when you file bankruptcy you have to sell off all your assets and turn over the proceeds from that sale to your creditors. In actuality, almost all states and the federal government have what are called exemptions. Exemptions allow a person who is being sued to satisfy a debt or who has decided to eliminate their debt through bankruptcy to keep certain assets regardless of the fact that they may owe creditors. Thus exemptions are so named because they exempt an individual’s assets from collection under the law. So just how powerful are these exemptions? While they vary from state to state, it is often the case that an individual filing for bankruptcy is able to protect ALL of their property by applying their state’s exemptions. After a short conversation with a knowledgeable bankruptcy attorney, he or she should be able to tell you whether you can so the same.
The Central Falls Bankruptcy – Chapter 9
There can be no dispute that the hottest topic facing the Rhode Island legal system at the moment is the City of Central Falls Bankruptcy protection filing under Chapter 9 of the United States Bankruptcy Code. According to a posting on the United States Bankruptcy Court for the District of Rhode Island’s web site:
“The City of Central Falls, Rhode Island filed a Chapter 9 bankruptcy petition at 9:03 AM, August 1, 2011. The case is assigned bankruptcy number 11-13105. Chief Judge Sandra Lynch of the First Circuit Court of Appeals has designated Bankruptcy Judge Frank Bailey, of the District of Massachusetts, to preside over the case.”
For those readers interested in viewing the actual petition, the Bankruptcy Court has made it available for the public.
Local news outlets, including the Providence Journal and GoLocalProv have provided excellent coverage on various aspects of the filing. As the case progresses, we too will provide periodic updates and explanations of the applicable laws.
The New Massachusetts Homestead Laws
Effective March 16, 2011 Massachusetts has updated its Homestead laws to provide greater protection to homeowners against creditors who would seek to force a debtor to use the equity in his or her home to satisfy a debt. Before the new law went into effect, homeowners had to file a Declaration of Homestead in the Registry of Deeds to obtain protection.
Now, the new statute provides automatic protection of one hundred twenty-five thousand dollars ($125,000.00) for the owner of record and his/her family. The protections apply regardless of whether the property is held as tenants in common or as joint tenants.
In addition, for the first time, in the history of the Commonwealth, homestead protection includes residences held in trust. Beneficiaries receive the one hundred twenty-five thousand dollar protection in The fact that all homeowners are entitled to an automatic one hundred twenty-five thousand dollars ($125,000.00) worth of protection, however, does not mean that there is no benefit in declaring a homestead. In fact quite the opposite is true. For those who declare a homestead, including beneficiaries of a trust, the automatic one hundred twenty-five thousand dollars ($125,000.00) is increased to a total of five hundred thousand dollars ($500,000.00). As with the automatic homestead, each owner’s coverage is his/her proportional interest in the residence.
Rhode Island Bankruptcy Law Blog 