One of the most persistent bankruptcy myths is:
“If I file bankruptcy, they will take everything I own.”
For most ordinary consumer bankruptcy cases, that is not what happens.
Bankruptcy law recognizes exemptions that protect qualifying property from creditors and the bankruptcy estate.
For Oklahoma residents, understanding Oklahoma’s exemption laws is an essential part of deciding whether to file bankruptcy.
What Is a Bankruptcy Exemption?
An exemption is a legal protection for certain property or interests in property.
Bankruptcy requires you to disclose your assets. You don’t simply leave property off the bankruptcy schedules because you believe it is protected.
Instead, qualifying exemptions are claimed as part of the bankruptcy process.
Can I Keep My House in Oklahoma Bankruptcy?
Oklahoma provides substantial protection for a qualifying homestead.
But homestead issues can involve:
- Whether the property qualifies as a homestead
- Property size and location
- Ownership
- Equity
- Mortgages
- Other liens
- Residency issues
Also remember that an exemption protecting equity does not eliminate a voluntary mortgage lien.
If you want to keep a mortgaged home, your ability to maintain the mortgage remains important.
Can I Keep My Car?
Yes, usually you do!
Oklahoma law provides exemption protection for motor vehicles up to $7,500 in equity.
The analysis begins with equity, not merely the car’s purchase price.
For example:
Vehicle value – loan balance = approximate equity.
If a vehicle is worth $20,000 but you owe $18,000, the equity is $2,000.
What About Household Goods and Personal Property?
Oklahoma exemptions provide protection for various categories of personal property.
The exact classification and applicable statutory provisions matter.
Do not assume an item is unprotected merely because it has value.
Likewise, don’t assume every item is automatically exempt.
Are Retirement Accounts Protected?
Many qualifying retirement accounts receive significant protection under federal or state law.
This is one reason cashing out retirement accounts before bankruptcy can be a serious mistake.
Someone may take money from a protected retirement account, incur taxes or penalties, and use the proceeds to pay debts that might otherwise have been discharged.
Talk with a bankruptcy attorney before liquidating retirement assets to pay unsecured creditors.
What About Money in the Bank?
Cash and bank accounts require careful exemption analysis.
The source of the money can sometimes matter because certain types of funds may receive special legal protection.
Tell your attorney about every account and the approximate balance.
What About My Tax Refund?
A tax refund can be an asset in bankruptcy, including in circumstances where the refund has not yet been received. Earned income credit portions of your refund are exempt.
The timing of the bankruptcy filing and the tax year involved can matter.
If you expect a substantial refund, tell your bankruptcy attorney before filing.
What If I Own a Business?
An ownership interest in a corporation, LLC, partnership or sole proprietorship must be analyzed.
Your attorney may need information concerning:
- Business value
- Equipment
- Inventory
- Accounts receivable
- Bank balances
- Ownership percentage
- Business debts
- Personal guarantees
Business owners should receive an individualized asset analysis before filing Chapter 7.
What About Property I Own With Someone Else?
Joint ownership does not automatically exclude property from bankruptcy.
Tell your attorney about real estate, vehicles, accounts or other assets owned with a spouse, family member or anyone else.
Should I Transfer Property Before Filing?
Generally, do not transfer property simply because you are worried bankruptcy will take it.
Transfers before bankruptcy must be disclosed and may create serious complications.
A particularly unfortunate situation occurs when someone transfers property that could have been legally protected with an exemption.
Get advice first.
Chapter 7 vs. Chapter 13 and Property
Property considerations are one reason choosing the correct chapter matters.
In Chapter 7, a trustee can administer nonexempt assets for creditors when appropriate.
In Chapter 13, debtors generally retain their property while proposing a repayment plan, although the value of nonexempt property can affect how much must be paid through the plan.
That means a person who has property that creates a problem in Chapter 7 may still have a workable Chapter 13 option.
Don’t Try to Determine Exemptions From a Generic National Website
Bankruptcy exemption law is highly dependent on applicable law and individual circumstances.
A generic article may provide useful background, but it cannot tell you whether your house, your car, your retirement account and your other property are protected.
That analysis should occur before your bankruptcy case is filed.
Frequently Asked Questions
Will I lose everything if I file Chapter 7 in Oklahoma?
No. Bankruptcy exemptions protect qualifying property. Whether a particular asset is fully protected depends on the applicable exemption and your circumstances.
Is my Oklahoma home protected in bankruptcy?
Oklahoma provides significant homestead protection for qualifying property, but mortgages, liens and the specific facts still matter.
Can I keep two cars?
That requires an individualized exemption and ownership analysis. Don’t rely on a general rule without reviewing the applicable statute and your equity.
Is my 401(k) protected?
Many qualifying retirement plans receive substantial protection, but the particular account should be identified and reviewed.
Should I spend my savings before filing bankruptcy?
Don’t rearrange or spend assets simply because you intend to file. Ask a bankruptcy attorney how the funds are treated first.
What happens if something isn’t exempt?
In Chapter 7, nonexempt property can potentially be administered by the trustee. Chapter 13 may provide a different solution. This is exactly why exemptions should be analyzed before filing.
Find Out What You Can Keep Before You File
Fear of losing property prevents some people from even investigating bankruptcy.
Don’t make the decision based on fear or assumptions.
Brown Law Firm can review your home, vehicles, retirement accounts, bank accounts, tax refunds, business interests and other property before a bankruptcy case is filed.
Contact Brown Law Firm for a free bankruptcy consultation. We can explain what Oklahoma bankruptcy exemptions may protect, identify potential problems before filing, and compare Chapter 7 and Chapter 13 so you can make an informed decision.
