Bankruptcy in Indiana, Part 4
Indiana does not allow federal bankruptcy exemptions
State versus federal exemptions
Although bankruptcy is administered by federal law, the bankruptcy code (the Code) allows states to opt out of federal bankruptcy exemptions and to provide their own exemptions. These exemptions are what debtors claim in order to protect certain assets necessary to their ongoing lives and effort to start over. Exemptions include such obvious items as a home, an automotive vehicle, household possessions and tools but also include such assets as insurance policies, retirement accounts, child support and jury awards.
15 states and Washington, D.C. allow claimants access to federal exemptions
Indiana is not on the list; here's the states that allow residents to claim federal exemptions instead of only state exemptions (Please notice: even in the following states, residents can't "mix-and-match," that is, they must choose one or the other):
States allowing federal exemptions
- Washington, D.C.
- New Jersey
- New Mexico
- Rhode Island
- South Carolina
- Washington, and
Why do I list the states that allow federal exemptions?
Living in Indiana, you may rightly wonder: What do I care about federal exemptions if I'm not allowed to claim them because of Indiana state law?
First, you may be in a position to hold off. I know I first considered bankruptcy protection in the 1980s, when my publishing/management consulting practice got starved for cashflow when my top client (ARCO Oil & Gas) hit the skids. Oil prices plummeted, and I had to lay off people.
To them, it did not feel like a layoff.
It felt like they were getting fired.
What I tried to explain was this: You did no wrong, but I'm out of money--I would happily pay you to keep doing the good job you have been doing.
But when ARCO cut me off? I no longer had the $thousand$ of bucks a month to spread among my family and trusted employees. The result for my former employees? No jobs to return to.
You may be in a situation similar to my employees: Through no fault of your own, you no longer have a job. Yet, you may be in a position to move to a new state for a job. Perhaps you move for the job and it turns out the new state has better exemptions, or it allows claiming federal exemptions. Typically, you'll need to be in the new state for several months to a couple of years.
Planning versus dodging
In short, there's nothing wrong with planning the timing of your bankruptcy case, as long all actions are taken in good faith and there's no attempt to hide assets or "temporarily transfer" title to assets to family members with them giving back the assets after your discharge from bankruptcy. Bottom line: in most cases, you can't move then right away file bankruptcy merely to dodge Indiana exemptions law.
The court takes a dim view of anyone who seems to be "dodging" the requirements.
Don't risk dismissal or fraud charges
Remember, your access to bankruptcy protection is not guaranteed. That is, yes, anyone can file for bankruptcy protection, regardless of income, from those living in poverty to those with millions in assets. However, everyone is subject to the means test (Chapter 7) or proof of assets versus liabilities and the income necessary to service a reorg/repayment plan (Chapters 13 and 11).
However, your case can be dismissed outright, leaving you exposed to all creditors. Or, worse, you can wind up facing charges of bankruptcy fraud, which can result in fines and even jail time.
These are all reasons for seeking counsel from an attorney experienced with Indiana bankruptcy courts and trained in both federal bankruptcy law as well as Indiana exemptions.
Next: Bankruptcy in Indiana, Part 5--Chapter 13 benefits over Chapter 7.
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