Sometimes when you file bankruptcy, all of your equity and your assets are not as high as the exemptions you’re allowed to take under state law. However, debtors are frequently “over-exempt”. For example in Maryland, you’re allowed to keep about $12,000.00 of assets not including your IRA and your home. What happens if your cash, your tax refunds, your furniture, and your car are worth more than $12,000.00? This is an example of being “over-exempt”. In that case, you will have to pay something to your trustee in bankruptcy. It might be the case that the dollar amount is so high that you are forced to file a Chapter 13 case and buy back that equity from your creditors. This buy-back would take place over some period of time, usually around 60 months. Sometimes, it is worth staying in Chapter 7 even if you’re a few thousand or even ten or twenty thousand dollars over your exemptions; it could be worth borrowing money or getting some other asset to pay the trustee in order for the trustee to abandon those assets so that you can keep them, get your discharge, and get on with your life and discharge what could be tens, dozens, or hundreds of thousands of dollars’ worth of debt.
With a little bit of planning and some clear-headed analysis, you will be able to make the right decisions.