COVID-19 Statement — Vermont's Bankruptcy Court is Open: The U.S. Bankruptcy Court for the District of Vermont is open, but operating with limited staff and resources. Hearings and conferences are being conducted by telephone, unless a party asks for an in-person hearing. If an in-person hearing is requested, it will be conducted once in-person appearances have been reinstated. All hearings and trials that do not involve time-sensitive issues will be rescheduled. If you have business before the court, please check the court website before visiting in person to check whether the building is open and staffed.
If you are a Vermont resident and in debt over your head, bankruptcy could protect you from creditors while you pay off or eliminate your debt. Bankruptcy offers people an option for ridding themselves of overwhelming debt and starting over without worrying about being harassed or sued by bill collectors. Additionally, Vermont has state laws in place that let residents protect some of their assets from creditors during bankruptcy.
Vermont Bankruptcy Law
The U.S. Bankruptcy Code is a federal law. However, the Bankruptcy Code lets states write their own laws on the property residents can protect from creditors in bankruptcy. Vermont has created its own rules on exempt property.
While it has chosen to implement its own rules on exempt property, Vermont also gives residents the option to choose the Bankruptcy Code's federal exemptions. You are free to choose the exemption system that works best for your financial situation, but you will need to stick with one system because you can't pick and choose on an exemption-by-exemption basis.
To better understand the role exemptions play in the bankruptcy process, it helps to know that when you file for bankruptcy you will have two options:
- Chapter 7 bankruptcy. Exemptions can play a large role in Chapter 7 filings because you will often lose most of the property that is not covered by an exemption. It is not all bad news, though. In return for giving up your nonexempt property, you will usually exit bankruptcy free from nearly all of your debt. In order to file for Chapter 7 you must meet income eligibility requirements.
- Chapter 13 bankruptcy is popular with homeowners because they can often keep their homes and other possessions, provided they can continue to make monthly payments.
One of the most important benefits you will enjoy under either chapter is the automatic stay issued by the court when you file. The stay stops almost all creditor collection activity, including foreclosures and court cases. This prevents collection agencies from harassing you and gives you the breathing room you need to resolve your debt problems.
Secured vs. Unsecured Debt
How your debt is designated is important because secured and unsecured debt are treated differently.
- Unsecured Debt: Debt is considered unsecured when a creditor 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. Since your unsecured creditors hold no collateral for their debts, those debts are the most likely to be eliminated during bankruptcy. But some priority unsecured debts, like child and spousal support, can't be discharged in bankruptcy.
- Secured Debt: A secured creditor has the right to repossess your property if you do not repay what you owe. Secured debt is often the result of a loan transaction where you signed a contract giving the lender the right to take back the property if you fail to pay. This security interest put creditors in a better position to recover money during bankruptcy.
How Secured and Unsecured Debt Work in Bankruptcy
When you file for Chapter 7 bankruptcy 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.
A Chapter 13 bankruptcy lets you create a plan to repay your creditors over three to five years. The court must approve your plan and may force creditors to reduce or restructure your debt. You can negotiate separately how to pay your mortgage payments. The trustee may negotiate a payment agreement with your lender if you are behind on your payments.
You pay unsecured creditors in a Chapter 13 with whatever disposable income is left over after you have repaid your secured creditors. After the repayment plan is finished (in three to five years) whatever unsecured debt remains is discharged.
Am I Eligible for Bankruptcy in Vermont?
To file under Chapter 7 in Vermont you must show that your income is low enough to qualify. This is usually done using one of two means tests.
The first means test involves your household income. If it is less than the median household income for a similarly sized household in your state, you qualify. For example, U.S. Census data shows that the median income for a three-person Vermont household was $87,394 in November of 2020. If you live in a three-person household with an income below $87,394, you would qualify to file under Chapter 7 in Vermont.
If your household income is above the Vermont median, you can still qualify under the second means test, which involves your disposable income. Your monthly disposable income is calculated by subtracting your monthly expenses from your monthly income. If you have little or no money left over after paying essentials you can file under Chapter 7.
To file under Chapter 13 you will need to show that you have a steady income and unsecured debt of no more than $419,275. Your secured debt cannot total more than $1.26 million.
Vermont Bankruptcy Exemptions
Vermont's exemption system may 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 during bankruptcy and use it to start over after you have finished with bankruptcy.
Except for the homestead exemption, married couples filing for bankruptcy jointly in Vermont may double the exemption amount for property they both own together. If just one spouse owns the property the exemption is not doubled.
Vermont will let you keep up to $125,000 of the equity you have in a home, mobile home, or condo. This amount is not doubled when married couples file jointly.
You will be allowed to keep up to 75% of your weekly disposable wages or 30 times the federal hourly minimum wage, whichever is higher. In some cases the judge will allow low-income individuals to keep a higher percentage of their wages.
Motor Vehicle Exemption
Vermont lets you exempt the equity you have in one or more motor vehicles up to a combined total of $2,500.
Personal Property Exemptions
You may exempt the following items up to a combined value of $2,500:
- Musical instruments
Additionally, you may exempt the following property:
- $700 of bank deposits
- $5,000 in livestock, coal, heating oil, firewood, and growing crops
- $500 of jewelry
- Wedding ring
- Heating unit
- Refrigerator and freezer
- Water heater
- Sewing machine
Tools of the Trade Exemption
Vermont grants an exemption of up to $5,000 for tools and books you use in your profession.
The wildcard exemption may be used on any property with a value of up to $400. Additionally, you may use up to $7,000 of your unused exemptions for motor vehicles, tools of the trade, and some personal property as part of your wildcard exemption.
Insurance Benefits Exemption
The following benefits are exempt:
- Annuity benefits of up to $350 per month
- Disability benefits supplementing a life insurance or annuity contract
- Disability benefits if needed for your support
- Health benefits of up to $200 a month
- Life insurance proceeds for someone you depended upon
- The proceeds of a life insurance contract specifying that the proceeds can't be used to pay creditors.
Pension and Retirement Exemptions
The benefits of most pension and retirement plans are exempt in Vermont, including:
- Tax-exempt retirement accounts, including 401(k)s, IRAs, and defined benefits plans
- State employee, municipal employee, and teacher plans
Public Benefit Exemptions
The following public benefits are exempt:
- Social Security benefits
- Unemployment compensation
- Workers' compensation
- Veterans' benefits
- General assistance to aid the blind, aged, and disabled
- Crime victims' compensation
Alimony and child support are exempt from bankruptcy in Vermont.
How Do I Start Bankruptcy in Vermont?
Before you file for bankruptcy you must first complete a credit counseling course within 180 days of filing. The course is relatively short and is intended to help determine if you really need to file for bankruptcy.
If you plan on filing under Chapter 13, you may be asked to prepare a repayment plan to file with the court. You must file a course completion certificate along with the filing paperwork you submit to the court.
If you file on your own, you must download the correct forms from the U.S. Bankruptcy Court for the District of Vermont. Additional forms and documents must accompany your petition as the bankruptcy proceeds.
Where Do I File for Bankruptcy in Vermont?
There is only one bankruptcy court in Vermont and it operates courthouses at two locations:
- Rutland (the clerk's office is not staffed)
How Much Does Bankruptcy Cost in Vermont?
It will cost you $338 to file for Chapter 7 bankruptcy in Vermont and $313 to file under Chapter 13. The fees are the same whether you represent yourself or use an attorney. If you can't afford the filing fee, you can ask to pay in installments over 120 days. If you earn less than 150% of the poverty line you can request that the fee be waived.
Most people filing for bankruptcy choose to be represented by an attorney. While each bankruptcy case is different and fees can vary depending on where you live, most Vermont bankruptcy lawyers will charge you around $1,100 for a fairly straightforward Chapter 7 case. Attorneys generally charge more for Chapter 13 cases, which can be much more complex.
Need Help Filing for Bankruptcy in Vermont?
If you are having trouble paying your bills, hiring an attorney to represent you in bankruptcy may seem like an expensive luxury when you can file on your own. However, even simple bankruptcy cases can involve complex court filings and meeting strict deadlines. An experienced local bankruptcy attorney will help guide you through the filing process, represent you in court, and negotiate with creditors to ensure that you retain as many of your assets as the law allows.
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.