Can a Creditor Object to Exemptions During a Bankruptcy Case?

 Posted on May 19, 2022 in Bankruptcy

When a person or family is struggling with debts and related financial issues, it can sometimes seem like there is no way out of this situation. While bankruptcy may be an option, many people are hesitant to pursue this form of debt relief because they worry that they will lose some or all of the property they own. Fortunately, there are a number of exemptions that can be used to protect property and ensure that a family will not have to completely start over. 

When filing for Chapter 7 bankruptcy, these exemptions may prevent certain assets from being seized and liquidated. In fact, many debtors will qualify for a no-asset bankruptcy in which all of their assets will be exempt. However, debtors will need to make sure they claim exemptions correctly. Claiming invalid exemptions may delay a debtor’s ability to complete their bankruptcy, or certain assets may be determined to be non-exempt, resulting in the liquidation of these items.

Reasons Creditors or Trustees May Object to Exemptions

During the bankruptcy process, a debtor will be required to attend a meeting of creditors, which is often referred to as the “341 meeting,” because the procedures for this meeting are described in Section 341 of the U.S. Bankruptcy Code. Creditors may or may not actually attend this meeting, and the proceedings will generally focus on reviewing the documentation provided by the debtor about their income and assets and making sure all the information provided is correct. 

During the 341 meeting, the bankruptcy trustee may address issues related to exemptions that may have been improperly claimed. Creditors may also object to the exemptions claimed by a debtor, and these objections must be filed within 30 days after the 341 meeting. These objections may include:

• Claiming the homestead exemption for a non-residence - In Texas, a debtor may exempt the full amount of equity they own in their home. However, if a person attempts to claim an exemption for another property they own that is not being used as a residence, a creditor may object to this exemption.

• Claiming an exemption for too many vehicles - In Texas, an exemption may be claimed for the entire value of a motor vehicle, and one vehicle may be claimed for each member of a family who has a valid driver’s license. If a debtor claims multiple vehicles for one person, a creditor may object to the exemption of one of these vehicles.

• Misreporting the value of certain assets - In Texas, the total value of personal property that can be exempted is $50,000 for a single person or $100,000 for a family. Creditors may object to certain exemptions because they believe that a debtor undervalued certain assets to ensure that they would fit within these limits. For example, jewelry may be exempted, but it cannot account for more than 25 percent of the total exemption claimed for personal property. If a creditor believes that the jewelry claimed by a person should have been valued at a higher amount, they may object to the exemption of these assets.

If a trustee finds that exemptions were claimed improperly, they may require the debtor to resubmit certain forms reporting the value of their assets. A debtor or creditor may submit appraisal information to demonstrate the actual value of the assets that are in dispute. If any assets are determined to be non-exempt, they may be seized and liquidated during the bankruptcy process.

Contact Our New Braunfels Bankruptcy Exemptions Lawyer

It is important to follow the correct steps during the bankruptcy process, including filing forms that correctly list the value of the assets a person owns. Mistakes made during this process or failure to properly report certain assets may delay the bankruptcy process, and assets that are misreported may be subject to liquidation. The Law Offices of Chance M. McGhee can ensure that you address these issues correctly, and we will work with you to make sure you will be able to keep as much of your property as possible while also receiving relief from your debts. Contact our Boerne Chapter 7 bankruptcy attorney at 210-342-3400 to set up a free consultation and begin the bankruptcy process.

Sources:

https://statutes.capitol.texas.gov/Docs/PR/htm/PR.41.htm

https://statutes.capitol.texas.gov/Docs/PR/htm/PR.42.htm

https://www.law.cornell.edu/rules/frbp/rule_4003