Will Bankruptcy Affect My Husband And Personal Property?
Full Question:
Answer:
When you file bankruptcy, you are required to fill out quite a few bankruptcy papers. Among these are Schedule C, which is a form where you list the property you are claiming should be exempt..
Both federal and state laws provide exemptions for certain property that a debtor is allowed to claim as exempt. What property is eligible for exemption status varies from state to state; however, some states allow you to choose whether to use the federal exemptions or your state's exemptions. In Maryland, when filing for bankruptcy, a debtor is required to the state's property exemptions. If you use your state's exemptions, you may also use the federal non-bankruptcy exemptions.
The following is a Maryland statute regarding exempt property:
§ 11-504 CTS. & JUD. PROC. Items exempt from execution.
(a) "Value" defined. —
(1) In this section the
following terms have the meanings indicated.
(2) "Value" means fair market value as of the date upon
which the execution or other judicial process becomes
effective against the property of the debtor, or the date
of filing the petition under the federal Bankruptcy Code.
(b) In general. — The following items are exempt
from execution on a judgment:
(1) Wearing apparel, books, tools, instruments, or
appliances, in an amount not to exceed $5,000 in value
necessary for the practice of any trade or profession
except those kept for sale, lease, or barter.
(2) Money payable in the event of sickness, accident,
injury, or death of any person, including compensation for
loss of future earnings. This exemption includes but is not
limited to money payable on account of judgments,
arbitrations, compromises, insurance, benefits,
compensation, and relief. Disability income benefits are
not exempt if the judgment is for necessities contracted
for after the disability is incurred.
(3) Professionally prescribed health aids for the debtor or
any dependent of the debtor.
(4) The debtor's interest, not to exceed $1,000 in value,
in household furnishings, household goods, wearing apparel,
appliances, books, animals kept as pets, and other items
that are held primarily for the personal, family, or
household use of the debtor or any dependent of the debtor.
(5) Cash or property of any kind equivalent in value to
$6,000 is exempt, if within 30 days from the date of the
attachment or the levy by the sheriff, the debtor elects to
exempt cash or selected items of property in an amount not
to exceed a cumulative value of $6,000.
(6) Money payable or paid in accordance with an agreement
or court order for child support.
(7) Money payable or paid in accordance with an agreement
or court order for alimony to the same extent that wages
are exempt from attachment under § 15-601.1(b)(1)(ii) or
(2)(i) of the Commercial Law Article.
(c) Appraisal. —
(1) In order to determine whether
the property listed in subsection (b)(4) and (5) of this
section is subject to execution, the sheriff shall appraise
the property at the time of levy. The sheriff shall return
the appraisal with the writ.
(2) An appraisal made by the sheriff under this
subsection is subject to review by the court on motion of
the debtor.
(3) Procedures will be as prescribed by rules issued by the
Court of Appeals.
(d) Waiver prohibited. — The debtor may not waive,
by cognovit note or otherwise, the provisions of
subsections (b) and (h) of this section.
(e) Wage attachments. — The exemptions in this
section do not apply to wage attachments.
(f) Interest in real or personal property. — In
addition to the exemptions provided in subsection (b) of
this section, and in other statutes of this State, in any
proceeding under Title 11 of the United States Code,
entitled "Bankruptcy", any individual debtor domiciled in
this State may exempt the debtor's aggregate interest, not
to exceed $5,000 in value, in real property or personal
property.
(g) Federal bankruptcy exemptions. — In any
bankruptcy proceeding, a debtor is not entitled to the
federal exemptions provided by § 522(d) of the federal
Bankruptcy Code.
(h) Interest in retirement plan. — (1) In addition
to the exemptions provided in subsections (b) and (f) of
this section and any other provisions of law, any money or
other assets payable to a participant or beneficiary from,
or any interest of any participant or beneficiary in, a
retirement plan qualified under § 401(a), § 403(a),
§ 403(b), § 408, § 408A, § 414(d), or § 414(e) of the
United States Internal Revenue Code of 1986, as amended, or
§ 409 (as in effect prior to January 1984) of the United
States Internal Revenue Code of 1954, as amended, shall be
exempt from any and all claims of the creditors of the
beneficiary or participant, other than claims by the
Department of Health and Mental Hygiene.
(2) Paragraph (1) of this subsection does not apply to:
(i) An alternate payee under a qualified domestic relations
order, as defined in § 414(p) of the United States Internal
Revenue Code of 1986, as amended;
(ii) A retirement plan, qualified under § 401(a) of the
United States Internal Revenue Code of 1986, as amended, as
a creditor of an individual retirement account qualified
under § 408 of the United States Internal Revenue Code of
1986, as amended; or
(iii) The assets of a bankruptcy case filed before
January 1, 1988.
(3) The interest of an alternate payee in a plan described
in subsection (h)(1) of this section shall be exempt from
any and all claims of any creditor of the alternate payee,
except claims by the Department of Health and Mental
Hygiene.
(4) If a contribution to a retirement plan described under
paragraph (1) of this subsection exceeds the amount
deductible or, in the case of contribution under § 408A of
the Internal Revenue Code, the maximum contribution allowed
under the applicable provisions of the United States
Internal Revenue Code of 1986, as amended, the portion of
that contribution that exceeds the amount deductible or, in
the case of contribution under § 408A of the Internal
Revenue Code, the maximum contribution allowed, and any
accrued earnings on such a portion, are not exempt under
paragraph (1) of this subsection.
If the business files bankruptcy, it will be a matter for the court to determine whether the business entity should be disregarded in order to seize personal assets. Under the legal theory of alter ago, a courts may disregard the limited personal liability that attaches to acts taken in a corporate capacity when there is in reality no separate identity of the individual and corporation. Some of the factors courts consider in determining whether the alter ego doctrine applies include:
1. Failure to hold meetings.
2. Commingling corporate with personal funds.
3. Using corporate accounts for personal loans or other personal purposes.
4. Negotiating loans or leases between the corporation and a principle other than at an arm's length basis.
5. Using corporate assets continually for personal use.
6. Failing to carry reasonable insurance on the corporation having due regard to the risks inherent in the corporation's business.
7. Failing to set up a review mechanism as to decisions so that all aspects of a proposed course of action will be considered.
8. Using the corporation or manipulating its assets for illegal transactions.
Whether your husband can be affected will depend on all the facts and circumstances involved. Generally, if the debts are solely that of one spouse, the separate assets of the other spouse may not be attached. However, property that is owned jointly may be subject to being sold so that the equity of the debtor spouse in that property may be used to satisfy the debt. I suggest you contact a local attorney who can review all the facts and documents involved.
