West Virginia Bankruptcy Exemptions and Law
If you are a West Virginia resident and have more debt than you can pay off, bankruptcy could protect you from creditors while you repay 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, West Virginia has state laws in place that let residents protect some of their assets from creditors during bankruptcy.
The U.S. Bankruptcy Courts are federal courts that are governed by the U.S. Bankruptcy Code. However, federal law lets states write their own laws on the property residents can protect from creditors during bankruptcy. West Virginia has chosen to implement its own rules on exempt property, which is the property you can keep to help you get on with your life after bankruptcy.
While many states will allow you to choose between state exemptions and the federal exemptions provided in the Bankruptcy Code, West Virginia is not one of them. That means you must use West Virginia's exemptions if you are filing there.
To better understand the role exemptions play in the bankruptcy process, it helps to be familiar with the two types of personal bankruptcy:
- Chapter 7 bankruptcy allows you to discharge (eliminate) most of your unsecured debt. In order to eliminate your debt, a bankruptcy trustee will sell your non-exempt assets. That is why exemptions can play a large role in Chapter 7 filings - the more of your property is exempt, the more property you can keep after bankruptcy.
- Chapter 13 bankruptcy lets people who have a steady income reorganize most of their debt so that it is paid off in up to five years. Fortunately, it usually eliminates some of your debt and reorganizes other debt to make the payments affordable. Chapter 13 is popular with homeowners because they can often keep their home.
One of the most important benefits you will enjoy if you file for bankruptcy 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
Bankruptcy law treats different types of debt differently. The most important distinction is whether a debt is secured or unsecured. The designation is important because it will dictate how much debt you can eliminate through bankruptcy.
Debt is considered to be 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.
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 right to seek a lien on the property you put up as collateral if you don't pay.
Since creditors retain their right to repossess the property in bankruptcy, you will usually need to give up the property or work out a payment plan with the creditor. Home mortgages and car loans are the most common types of secured debt.
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. Usually, you will need to choose from one of the following options:
- 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 or federal exemption covers the equity you have in the item.
- Purchase the property outright. This is rare in Chapter 7 cases because you are usually required to turn over your cash assets to the trustee.
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. Your mortgage payments will not be included in the plan, but the trustee may negotiate a payment agreement with the lender if you are behind on your payments.
In Chapter 13, unsecured creditors are paid with the disposable income that is left over after you have repaid your secured creditors. Any unsecured debt not paid under the plan is discharged when the plan has finished.
To file under Chapter 7 in West Virginia 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 is simple: If your household income 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 West Virginia household was $67,702 in November 2020. That means if you live in a three-person household with an income below $67,702, you would qualify to file under Chapter 7 in West Virginia.
If your household income is above the West Virginia median, you can still qualify under Chapter 7 based on your disposable income. Essentially, if you have little or no money after paying for essentials such as your home, car, and food, you may qualify. Often people who file for Chapter 7 are losing money each month after paying essential bills.
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. Unlike Chapter 7, for a Chapter 13, it helps to have enough income to show that you can continue making payments.
West Virginia's exemption system 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 during bankruptcy and use it to start over after you have finished with bankruptcy.
When a married couple files for bankruptcy together in West Virginia each is usually allowed to claim a complete set of exemptions. In essence, if you file for joint bankruptcy with your spouse you will be allowed to double most state exemptions.
West Virginia allows homeowners to exempt up to $25,000 of the equity you have in the home where you reside. This amount doubles to $50,000 if you are married and file for joint bankruptcy. Physicians who file for bankruptcy due to debt arising from a medical malpractice claim and carry at least $1 million in malpractice insurance are allowed to protect up to $250,000 of the equity in their home.
The homestead exemption may be applied to your equity in any real or personal property, including a house, condo, co-op, or burial plot.
The state lets you apply an $800 wildcard exemption to any property that you own. Additionally, the wildcard exemption lets you apply the unused portion of your homestead exemption to any property. That means if you do not take advantage of the homestead exemption you can use the $25,000 exemption on any other property you would like to protect from creditors.
Motor Vehicle Exemption
You may exempt up to $2,400 of your equity in one motor vehicle.
Personal Property Exemptions
West Virginia lets you exempt each of the following up to $400 in value, not to exceed a total of $8,000 combined:
- Household furnishings
- Household goods
- Musical instruments
You can also exempt up to $1,000 in jewelry.
Tools of the Trade Exemption
Any tools, implements, or books you use in your trade are exempt up to $1,500 in value.
Pension and Retirement Exemptions
Most pension and retirement plans are exempt in West Virginia, including:
- Tax-exempt retirement accounts like 401(k)s, IRAs, and defined benefit plans
- Plans for public employees and teachers
Insurance Benefit Exemptions
The following insurance payments and benefits are exempt in West Virginia:
- The proceeds of a group life insurance policy
- Some unmatured life insurance contracts
- Payments from the life insurance policy of a person upon whom you depended for support
- Health or disability benefits
- Fraternal society benefits
Public Benefit Exemptions
West Virginia lets you protect the following benefits in bankruptcy:
- Social Security
- Unemployment compensation
- Workers' compensation
- Veterans' benefits
- General assistance
- Aid to the blind, aged, and disabled
- Crime victims' compensation
- Alimony and child support that is necessary for support
- Property of a business partnership
- Prescribed health aids
- Lost earnings payments that are needed for support
- Personal injury recoveries of up to $15,000, not including pain and suffering
- Wrongful death recoveries for people upon whom you depended if needed for your support
Need Help Filing for Bankruptcy in West Virginia?
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.
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