Utah Bankruptcy Exemptions and Law
Here because of COVID-19?: Utah's bankruptcy courts are open despite the coronavirus pandemic. Certain restrictions, such as social distancing and facemask requirements, usually apply. Additionally, most bankruptcy judges and trustees (people who oversee bankruptcies for judges) conduct hearings and 341 meetings via telephone. Videoconferencing is usually available as well. Live meetings and hearings are usually unavailable. Click here for more information. Otherwise, read on for more information about bankruptcy protections in Utah.
Taking Control Through Bankruptcy
Most people file bankruptcy due to circumstances that are mostly beyond their control. Medical bills are a good example. Hospital, surgical, and other medical debt accounts for about two-thirds of bankruptcy filings. Lifestyle decisions sometimes contribute to injury or illness. But no one asks for these things to happen.
Bankruptcy is ideal for people who feel like their financial lives are spiraling. No other debt protection law offers the same one-two-three punch as bankruptcy. This combination is outlined below. So, instead of waiting and hoping for things to get better, you can take control of your own financial future.
A Utah bankruptcy lawyer helps you before, during, and after the case. Attorneys give you solid advice about your debt relief options. Bankruptcy and non-bankruptcy alternatives are usually available. During the case, an attorney handles the complex paperwork and represents you at bankruptcy hearings. After the case, a lawyer can work with you on the quickest and most effective way to raise your credit score.
Regardless of the state, bankruptcies are always a combination of federal and state laws. Utah's bankruptcy laws are a good example. Federal law, mostly the Bankruptcy Code, controls most aspects of a bankruptcy case. State law, such as the Utah Exemptions Act, controls property exclusions and a few other items.
General Bankruptcy Principles
The fresh start is the overarching principle in bankruptcy cases. The Supreme Court has consistently held that bankruptcy “relieve[s] the honest debtor from the weight of oppressive indebtedness, and permit[s] him to start afresh free from the obligations and responsibilities consequent upon business misfortunes."
Section 362 of the Bankruptcy Code is an essential part of this fresh start. The automatic stay immediately stops creditor adverse actions, like:
- Lien placement
- Wage garnishment
- Bank account levy
The automatic stay can prevent these things from happening. However, these actions are difficult to undo, whether you file bankruptcy or not. So, prompt action is essential.
Typically, the automatic stay remains in full effect as long as the case is pending. That could be up to five years. So, if you need time to catch up on mortgage payments or erase other secured debt delinquency, bankruptcy gives you the chance to do so. Creditors cannot harass you during the protected repayment period, as long as you make monthly payments.
When the bankruptcy ends, the judge discharges most unsecured debts, such as medical bills and credit cards. This debt discharge, or debt forgiveness, usually frees up hundreds of dollars a month.
The automatic stay and debt discharge are the one-two portion of the aforementioned one-two-three punch. The third component is discussed below.
Types of Consumer Bankruptcy
Essentially, there are two kinds of consumer debt. So, there are basically two kinds of bankruptcy. Some other bankruptcy options are available in some jurisdictions.
Families with large medical bills and other unsecured debt often choose Chapter 7 bankruptcy. In as little as six months, Chapter 7 eliminates most unsecured debts. The full force of the automatic stay usually applies in these cases. In other words, when you file Chapter 7, creditors leave you alone and you quickly get a fresh start.
If mortgage delinquency and other secured debts are a problem, Chapter 13 is usually a good alternative. In a Chapter 7, the bankruptcy trustee does little more than verify your identity at a 341 meeting. A Chapter 13 trustee does much more. The trustee basically puts you on an allowance for either three or five years. After you pay monthly bills, most disposable income goes to pay down secured debt delinquency.
Unsecured debt discharge, which happens after secured debt delinquency is erased, completes a Chapter 13 fresh start.
Not everyone in Utah is eligible for a fresh start. You must have lived in the state for at least two years to file bankruptcy here. Moreover, you cannot hide income, misclassify your debts, or otherwise commit bankruptcy fraud. There are some chapter-specific qualifications as well.
Qualifying for Chapter 7
The means test often determines your eligibility to file Chapter 7. Your annual household income must be below the state average. This figure, which is usually about $95,000 for a family of four, changes every few months. Some regional variations apply. For example, the cost of living is higher in the Ogden/Salt Lake City/Provo region than it is in other areas.
Some other qualifications apply as well. Sometimes, these rules are unwritten. For example, if you file for Chapter 7 despite earning more income than you owe in necessary expenses each month, expect the trustee to ask questions about where the money is going.
Qualifying for Chapter 13
There are no debt ceilings in a Chapter 7. But, there are debt ceilings in a Chapter 13. You cannot have more than $1.4 million in secured debt and $400,000 in unsecured debt. These totals include current and past-due obligations. So, if your name is Batman and you live in Wayne Manor, you might not be eligible for Chapter 13 bankruptcy.
The income/expense balance sometimes comes into play as well. But Chapter 13 has the opposite unwritten rule of Chapter 7. Chapter 13 debtors must have enough disposable income to make a monthly debt consolidation payment. The amount depends on the amount of debt and some other factors. It's usually roughly the size of a mortgage or rent payment.
The Beehive State's generous property exemptions are the third component of the one-two-three combination mentioned above. Utah residents who file bankruptcy usually get to keep most or all of their property.
Bankruptcy Exemptions 101
Outside bankruptcy, your hard-earned assets are at the mercy of creditors. In many cases, creditors do not need court orders to take your house, car, or other property. Bankruptcy protects (exempts) these assets.
Luxury items, like vacation homes and boats, are usually nonexempt (not protected). But that's not always the case.
Assume Vickie has a trailer that she uses primarily for camping. It is several years old, and it shows its age. So, its fair market value is low, and it needs some work.
Normally, items like camping trailers are nonexempt. But Vickie will probably be able to keep her fifth wheel if she files bankruptcy. Since its value is low and the trustee must make repairs, if the trustee sold it, there would be little or no money to distribute to creditors. An obscure bankruptcy law provision, the best interests of creditors rule, forbids such seizures and sales.
In fact, depending on the way Vickie used her fifth wheel, it might be exempt under Utah law. If Vickie lived in it full time, even for a brief period, it might fall under the homestead exemption.
Property Exemptions in the Beehive State
Some states allow debtors to choose between federal exemptions or state bankruptcy exemptions. That choice is unavailable in Utah. But that usually does not matter, because Utah's exemptions are so broad. They include:
- Home equity: If you have less than $42,700 of equity in your house, mobile home, or other residence, the trustee cannot touch it. You may also exempt up to $5,1000 in other real estate or property equity that is not your primary residence. In case you are wondering, Vickie's fifth wheel is probably not “real estate" in this context.
- Motor vehicle: The law protects up to $3,000 of vehicle equity. Typically, new cars, like new houses, have almost no equity. Since these loans are amortized, for about the first half of the loan, almost all payments go to interest instead of principal. Used cars have almost no value, especially if they have any significant wear and tear.
- Personal property: Clothes, furniture, electronics, jewelry, firearms, and other personal property and household goods are exempt in Utah. Sometimes, value limits apply. Once again, however, things like used guitars and other musical instruments are practically worthless, at least financially.
- Retirement accounts: Defined contribution plans, like IRAs, and defined benefit plans, like pensions, are exempt. The exemption also applies to college savings plans, if they are worth less than $200,000.
- Income: 75% of your current wages are exempt. This exemption also applies to government income payments, like VA disability or Social Security payments. Insurance payments are usually exempt as well. A bankruptcy lawyer can show you how to maximize these exemptions.
Married couples can normally double these exemption amounts. So, if Alex and Jennifer file bankruptcy, they may exempt up to $85,400 in home equity, and so on.
On the subject of homes, a quick word about bankruptcy values. There is usually a difference between an item's fair market value and its as-is cash dollar amount. You must list an item's as-is cash value, or its garage sale value, on Schedule A or B.
How do I start bankruptcy in Utah?
If you are considering bankruptcy, money is probably tight. A do-it-yourself bankruptcy saves money, at least in the short term. The forms are available here. But unless you are filing a no-asset Chapter 7, a DIY bankruptcy is probably a bad idea. These matters are much more complex than tax returns.
Some debtors work with non-lawyer bankruptcy petition preparers. But BPPs have no special qualifications. Furthermore, they can only take your money and fill out forms. They cannot offer any advice. They certainly cannot provide legal representation.
A partnership with a Utah bankruptcy lawyer is more expensive than a DIY or BPP filing. But the investment pays off. For example, an attorney can unlock some upper-level bankruptcy options which, in many cases, could save you thousands of dollars. So, ask yourself how much your family's financial future is worth.
Where do I file bankruptcy in Utah?
Utah's bankruptcy court is in Salt Lake City on the third floor of the Moss Courthouse. DIY and BPP filers must normally go there in person during business hours. A lawyer usually has access to the state's ECF (Electronic Case Filing) system. So, lawyers can file documents from any place at any time. Lawyers may also pay fees via ECF.
How much does bankruptcy cost in Utah?
Nonprofessional fees, or filing fees, are usually around $350 for a consumer bankruptcy. The fees vary slightly, depending on which trustee the court assigns. A few debtors are eligible for installment plan payment or even a filing fee waiver.
Professional fees, or attorneys' fees, usually vary as well, usually depending on the type of bankruptcy. As for the method of payment, most Chapter 7 debtors are eligible for a pre-petition installment plan. Most Chapter 13 filers can take advantage of a post-petition installment plan.
What do you lose if you declare bankruptcy?
You lose most or all of your nonexempt property when you file bankruptcy in Utah. Fortunately, most people do not have a lot of nonexempt assets, unless they have helicopters and yachts. Your home, car, wages, government benefits, and retirement account are exempted (protected) from seizure. Most of your personal property is exempt as well.
How do I declare bankruptcy in Utah?
Most people qualify for Chapter 7 or Chapter 13. To declare bankruptcy, you must file a petition and schedules. You must also attend a meeting with the trustee, complete two financial management classes, and cooperate fully with the judge and trustee.
What's the difference between Chapter 7 and Chapter 13?
If you have crippling unsecured debt, like high medical bills, you should probably file Chapter 7. If you have secured debt delinquency, like past-due mortgage payments, you should probably file Chapter 13.
What are the most common reasons for filing Chapter 7?
Roughly two-thirds of Utah residents file Chapter 7 because of high medical bills. Other reasons include job loss, divorce or separation, business downturn, and reckless overspending. Many people file Chapter 7 due to a combination of two or more of these things.
Connect with a Dedicated Attorney
Bankruptcy gives you the fresh financial start you deserve. To get started, call an experienced Utah bankruptcy lawyer today.
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.