Idaho Bankruptcy Exemptions and Law
If you are overwhelmed by debt that you know you can never pay off, filing for bankruptcy offers a chance to get out from under your crushing debt load. Filing for bankruptcy stops any calls or other harassment by bill collectors and gives you the breathing room you need to either work out a payment plan with your creditors or eliminate your debt. As an Idaho resident, you can also take advantage of state laws that let you shield some of your assets from creditors during bankruptcy.
The U.S. Bankruptcy Code lets states adopt their own rules on what property residents can protect from creditors. This protected property is known as “exempt property" because it is exempt from most of the rules that require you to turn over your property to a trustee in Chapter 7 bankruptcy. The Bankruptcy Code provides its own set of federal exemptions, but you must use the Idaho exemptions if you file in the state.
When you file for personal bankruptcy you can file under Chapter 7 or Chapter 13. To understand the role that exemptions play in a Chapter 7 case you must first understand how it differs from a Chapter 13 case:
- Chapter 7 bankruptcy is often called “liquidation bankruptcy" because you must turn over your non-exempt property to a trustee, who will sell it to repay your creditors. In return for giving up your non-exempt property, you will usually leave bankruptcy free from nearly all of your debt. The benefits of Chapter 7 are only available if your income is below specified levels.
- Chapter 13 bankruptcy is available to individuals who have a steady income and reorganize their debts so they are paid under a three-to-five-year plan. Often, the court-approved Chapter 13 plan will force creditors to accept less than they are owed. Additionally, if you own a home, you can usually structure the plan so that you keep your house.
Regardless of the form of bankruptcy you choose, when you file the judge will issue an automatic stay to bar creditors from harassing you while you resolve your debts through the bankruptcy process. The automatic stay is a powerful tool because it stops creditors from taking collection actions against you, including home foreclosures and court cases.
Secured vs. Unsecured Debt
When you file for bankruptcy your debts will be divided into two categories: secured and unsecured. How much of your debt falls into each category will greatly impact how much debt you can eliminate in bankruptcy.
You have unsecured debt if you owe money to a creditor that has no right to repossess your property for failure to pay. Credit card debt, court judgments, and medical debt are among the most common types of unsecured debt.
Unsecured debt is the most likely to be eliminated through bankruptcy and most people exit bankruptcy with little to no unsecured debt. However, some unsecured debts cannot be discharged, like spousal and child support.
Secured debt means you owe money to a person or business with a security interest in your property. That security interest allows them to repossess the property if you fail to pay them. Secured debt is most often created when you sign a contract that gives a lender the right to seek a lien on your property for failure to pay. The most common examples of secured debt are home mortgages and auto loans.
Secured creditors are treated better in bankruptcy than unsecured creditors. That is because bankruptcy does not interfere with the secured creditor's right to repossess your property. As a result, you will usually need to either give up the secured property or work out a repayment plan with the creditor when you declare bankruptcy.
How Secured and Unsecured Debt Work in Bankruptcy
Since most people filing for Chapter 7 bankruptcy have little money and few assets, they can usually eliminate almost all of their unsecured debt. However, secured creditors have more power than unsecured creditors in the bankruptcy proceeding.
What Happens to Your Debt in Chapter 7?
When you file for bankruptcy under Chapter 7 you can usually discharge most of your unsecured debt. However, secured debt is treated differently and can rarely be eliminated in a Chapter 7 case. Essentially, you have three options for secured debt:
- Return the property to the creditor. If you choose this option you will lose the property, but you will usually be free from making additional payments.
- Keep the property and continue making payments. This is sometimes possible when a state exemption covers the equity you have in the item.
- Purchase the property outright. This is rare in Chapter 7 cases because most people who file under this chapter lack the assets to do so
What Happens to Your Debt in Chapter 13?
Filing for Chapter 13 bankruptcy lets you create a plan to repay your secured creditors over three to five years. The plan usually repays unsecured creditors with any disposable income you have left after the secured creditors have been paid. At the end of the plan, any unpaid debts owed your unsecured creditors will be eliminated.
The Chapter 13 plan must be approved by the court, which also has the power to force creditors to reduce or restructure your debt. Homeowners who want to keep their homes will continue making mortgage payments outside of the plan. But if you are behind on your mortgage payments the trustee may negotiate an arrangement with your lenders to either pay the past-due amounts in installments or forgive them.
You can only file for Chapter 7 bankruptcy if your income is below specified amounts. The bankruptcy court generally uses two means tests to determine whether you earn too much to qualify.
The first means test is based on whether your household income is less than the median household income for similar-sized Idaho households. For example, U.S. Census data shows that the median income for a three-person Idaho household was $72,304 as of November 2020. If you live in a three-person household that has less than $72,304 in income, you will qualify for Chapter 7 in the state.
You can still qualify for Chapter 7 if your household income is above the median if you can show that you cannot cover your monthly expenses each with your current income. Essentially, if you can show that your debts leave you with little to no disposable income each month, regardless of how much you earn, you can still file under Chapter 7.
It is pretty uncommon, but it is possible to have too much debt to file under Chapter 13. Chapter 13 filers cannot have more than $419,275 in unsecured debt and secured debt of no more than $1.26 million.
Idaho's exemptions must be used by anyone filing for bankruptcy in the state. If your property falls within one of the exemptions, you can protect it from creditors and use it to start over once you are finished with bankruptcy.
When married couples file for bankruptcy together in Idaho each spouse is usually allowed to claim a complete set of exemptions. In essence, you will be allowed to double most state exemptions if you own the property together.
Idaho will let you exempt up to $175,000 of the equity you have in your home. That amount can be doubled to $350,000 if you are married and own the home together.
The exemption covers a house or mobile home in which you live, along with any associated buildings that may be on the property. There is no limit to the amount of land that is considered part of the homestead, so long as it qualifies as the owner's principal residence.
You may keep up to 75% of your weekly wages, or 30 times the minimum wage, whichever is greater. However, you may only keep $2,500 of the wages that you have already earned, but not been paid. A bankruptcy judge may allow some low-income individuals to keep more of their earnings.
Motor Vehicle Exemption
Idaho will let you exempt up to $10,000 of your equity in a motor vehicle.
Idaho has a wildcard exemption that you can use to protect up to $1,500 of value in any property that not real estate.
Personal Property Exemptions
You can exempt $7,500 of the following property, up to a maximum of $1,000 per item:
- Household appliances
- Home furnishings
- Musical instruments
- Heirlooms and items with sentimental value
The state offers an exemption for up to $1,000 in jewelry and one firearm valued at up to $1,500. Idaho also provides a $5,000 exemption for crops and certain water rights.
Tools of the Trade Exemption
Idaho provides an exemption of up to $10,000 for the tools, implements, books, and business equipment you use in your trade or profession.
Insurance Benefits exemption
Insurance benefits that are exempt in Idaho include:
- Medical, surgical, and hospital benefits
- The value of most life insurance contracts and benefits
- Death or disability benefits
- The proceeds of a homeowner's insurance policy up to the amount of the homestead exemption
Pension and Retirement Exemptions
The following public benefits are exempt:
- Tax-exempt retirement accounts such as 401(k)s, IRAs, and defined benefit plans.
- Public employee, police officer, and firefighter plans
- Any pension needed for support
Public Benefit Exemptions
Idaho provides an exemption for the following public benefits:
- Social Security benefits
- Unemployment benefits
- Workers' compensation
- Federal, state, and local public assistance and aid
- Veterans' benefits
- Reasonable alimony and child support payments
- Liquor licenses
- Business partnership property
- Building materials
- Burial plots
- Health aids
- Wrongful death recoveries necessary for support
Anyone filing for bankruptcy in the U.S. must first complete a counseling course. The course must be completed within 180 days of filing and is designed to help you assess whether you really need to file for bankruptcy to pay off your debts. You must submit your course completion certificate along with your bankruptcy filing.
You do not need an attorney to file for bankruptcy. If you are not hiring an attorney the first step in filing will be to locate and download the correct bankruptcy forms for the District of Idaho. The instructions for the forms will tell you what additional documents must be provided, depending on your financial situation and which type of bankruptcy you are pursuing.
The costs of filing for bankruptcy are the same nationwide: $338 for Chapter 7 and $313 for Chapter 13. Those fees are the same regardless of whether you file on your own or using an attorney. However, if you cannot afford to pay the entire fee when you file you can ask to make installments over 120 days. Additionally, if you earn less than 150% of the poverty line you can ask the judge to waive your fee.
If you choose to file using an attorney the fee you are charged can vary greatly depending on where you are located in Idaho. For example, the typical cost of a straightforward Chapter 7 case can vary from $800 to $1,500. An attorney will generally charge more for a Chapter 13 case and your legal fees can easily top $5,000 if your case is complicated.
Need Help Filing for Bankruptcy?
It is recommended that you seek the help of an experienced local attorney if you are filing for bankruptcy in Idaho. Even a simple case will involve filing complex documents and strict deadlines.
While you could file bankruptcy on your own, missing a deadline or making a filing error could result in the court dismissing your case and the loss of the automatic stay that keeps your creditors from harassing you. Hiring a qualified bankruptcy attorney to guide you through the process will ensure that you receive all of the benefits of filing for bankruptcy.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.
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