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    Chapter 7 Bankruptcy

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    Bankruptcy Laws in Connecticut

    It can be easy to escape the mental anguish of your debts while living in Connecticut. Just a drive through this gorgeous state, getting lost in the fresh air and fall foliage, maybe making a stop in Waterbury for some mouthwatering barbecue or New Haven, for its world-famous pizza, is enough to take your mind off of your financial problems. Unfortunately, those problems will continue to follow you, unless you file bankruptcy and get a fresh start.

    You might think bankruptcy is entirely a federal matter — it’s filed in federal bankruptcy courts, after all. However, the rules that matter most to you (the ones that determine whether you are eligible to file, and the rules that say which property you get to keep) are localized at the state level, because things are quite different (many would say exponentially better and certainly more affordable) here than in more hectic places like New York City.

    If the idea of referencing multiple arbitrary rule sets that determine what property is stripped away and sold to creditors is excruciating and miserable to you, you are not alone. We are there with you, and we will walk you through those rules so that you can make an informed decision about bankruptcy and know what questions to ask your attorney.

    The courts may be federal, but the rules that you care about are not.

    While it is true that your paperwork will be handled by a clerk in a federal courthouse, let’s be honest here: you do not care whether the forms that you fill out are federal or state forms. What you do care about is whether you are eligible for relief and whether you will get to keep the property that is most important to you once this process is done.

    Most people are looking for a Chapter 7 discharge of debt at the end of their bankruptcy journey. This means the court will look over their assets, sell off anything that they deem to be excess, distribute the proceeds from that sale to your creditors, and then discharge your remaining debt to give you the freedom to rebuild your financial life after bankruptcy.

    Connecticut Means Test

    In order to be eligible for that chapter 7 filing, you must first pass the means test.

    The first part of the means test is strictly household income-based: if your household income is below the median household income for Connecticut, you are eligible to file for bankruptcy — no second part of the test is required. As of May 2022, the figure was $72,497 for a single filer and a greater amount for families.

    If you did not pass the first part of that test, we next look at the disposable income test. Under this test, the court will look back at your last six months of income to calculate what your monthly disposable income is — the amount you have left over after paying necessary living expenses such as housing and groceries. They will put this amount into a formula that multiplies it by 60 and compares it against a number on the bankruptcy application that is kept regularly adjusted for inflation. If your disposable income is larger than that number, you do not qualify. In addition, the court may not allow you to file for bankruptcy if your disposable income is enough to pay for at least 25% of your unsecured debt.

    Please note the eligibility in the means test is not entirely clear cut. An experienced attorney may be able to advise you differently, especially if after reading this you are assuming that you are not eligible.

    Connecticut Bankruptcy Property Exemptions

    If the idea of filing for bankruptcy and ending up with absolutely nothing to your name is terrifying, let us offer you some solace: the courts do not expect you to walk out of court completely empty-handed. Instead, they have worked with state lawmakers to devise a list of exemptions (property that you can keep) that will allow you to have a strong foundation for rebuilding your financial life post-bankruptcy.

    Connecticut has its own set of property exemptions, though they do allow you to opt into the federal set of exemptions — in essence, you get to choose which set of rules is best for you. In addition to comparing the two sets of rules, you have to make note of any applicable wildcard exemptions that can apply to any property you choose, plus figure out whether you will choose to keep your home and car if those are exempt but you still owe money. It can be very beneficial to discuss your case with an attorney before assuming that certain exemptions apply, or are the best fit for your case.

     One more note on Connecticut exemptions: the state has made it clear that married couples can double their exemptions if they are filing their bankruptcy together.

    Wildcard Exemption

    A wildcard exemption allows you to apply an exempt dollar amount to any property that you wish to protect. For example, you might want to protect an extra car. The wildcard exemption in Connecticut is currently at $1000 and can be applied to any property you own.

    And don’t forget about the federal rules, which also have a wildcard exemption: $1,475 plus up to $13,950 of any unused part of the federal homestead exemption effective April 1, 2022. (If you’re married and filing a joint bankruptcy, these sums can be doubled.)

    Homestead Exemption

    Your home is your refuge from the stresses of the outside world. It will be your rock when you emerge from bankruptcy. Fortunately, Connecticut is fairly generous with their homestead exemption: you can exempt up to $75,000 in equity (again, double that for married couples). Equity is the amount your house is worth minus what you still owe on it.

    Under federal law, the homestead exemption is $27,900 (twice that for married couples). 

    Automobile Exemption

    you have a home to return to at night, but how do you get to work? Connecticut is a pretty spread-out state, full of gorgeous rural towns like Cheshire and beach towns like Mystic. Living without a car is extremely difficult. Fortunately once again, Connecticut does have a motor vehicle exemption of up to $3,500 in equity.

    The federal exemption is a little larger: up to $4,000 in equity.

    While a $3,500 vehicle may not run given today’s insane car market, remember that that is equity — like the home exemption, that is the net value after subtracting what you owe from what the car would be worth on the market. If you do owe money on your car, and you decide to keep it, you’ll have to affirm that debt through the court, catch up on any payments, and keep making your monthly payment throughout the bankruptcy case and beyond.

    Clothing, Household Goods, Personal Property, and Animals Exemptions

    Connecticut keeps things nice and simple when it comes to personal property: it is exempt. This means furniture, clothing, appliances, wedding rings, food, burial plots, the tools of your trade, and your health aides are all exempt in bankruptcy court.

    By contrast: the federal rule is more limiting. You can exempt up to $700 per item, with a cumulative limit for all of your personal property at $14,875.

    Retirement Benefits

    Most people who have been in the workforce for a while have some retirement benefits accrued, and especially if they are close to retirement, keeping this nest egg is probably one of their primary concerns. Connecticut explicitly exempts 401(k)s, IRAs, and pension plans. It also exempts state and city employee retirement benefits, teacher retirement benefits, Social Security, unemployment, veterans benefits, and benefits for disabled and low-income families.

    Similarly, the federal rules exempt up to $1.28 million and accrued retirement account value across your 401(k), IRA, or other retirement accounts.

    There may be some types of retirement accounts or savings accounts that are not exempt in bankruptcy court. While both state and federal rules here in Connecticut are very generous in this regard, do not assume without speaking to a lawyer that your retirement benefits will be intact after filing for bankruptcy — those benefits are far too important to gamble in court.

    Exemptions are Complex: Get Professional Help

    Looking at the Connecticut state exemptions and the federal exemptions, it may be a tough choice for you to decide which set of exemptions is most beneficial for your situation. And it is not an exaggeration at all to say that these are the most important rules in your case, as they will determine everything from whether you can file to what you will end up with after filing. This is where expert advice from a bankruptcy attorney can  pay off — your attorney can help you maximize the amount of exempt property and set you up for a strong financial future after filing. For expert advice, schedule a consultation with one of our network attorneys.

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