9.2 The Treatment Afforded Certain Assets During Bankruptcy

• Library: Enforcement of Liens and Judgments in Virginia (Virginia CLE) (2019 Ed.)

9.2 THE TREATMENT AFFORDED CERTAIN ASSETS DURING BANKRUPTCY

9.201 Exempt Property.

A. In General. Section 522 of the Bankruptcy Code provides that individual debtors may claim certain property as exempt from the bankruptcy estate. A debtor can opt between either the federal exemption schedule set forth in section 522(d) of the Bankruptcy Code or the exemptions available under state law unless the state law that is applicable to the debtor does not authorize the use of the federal exemptions listed in section 522(d). ¹¹⁰ Virginia is an "opt out" state. ¹¹¹ If Virginia law is applicable to the debtor, ¹¹² then the debtor may claim only the exemptions that are allowable under Virginia law and under nonbankruptcy federal law. ¹¹³ Sections 34-1 through 34-34 of the Virginia Code delineate most of the exemptions available under Virginia law. If the debtor acquired certain property within 1,215 days before the filing of the debtor's bankruptcy petition, the debtor's homestead exemption will be limited to $160,375 in value. ¹¹⁴ If the debtor converted or disposed of property with the intent to hinder, delay, or defraud a creditor within ten years before the filing, those actions could affect the debtor's right to claim certain exemptions. ¹¹⁵ Among the most important exemptions are:

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	1.	The homestead exemption, 116 which exempts real and personal property not to exceed $5,000 in value—$10,000 if the householder is 65 years of age or older—and an additional $500 in value for each dependent the householder supports. A debtor may invoke the protection of the homestead exemption only once in his or her lifetime. To claim a homestead exemption, the debtor must timely file a homestead deed on or before the fifth day after the date initially set for the meeting of creditors. 117 To exempt an interest in real property, the homestead deed must be filed in the city or county where the real property is located. For interests in personal property, the homestead deed must be filed in the city or county where the debtor resides;
2.	The poor debtor's exemption, which allows a debtor to exempt his or her interest in various items of personal property, such as a family bible, wedding ring, family heirlooms not exceeding $5,000 in value, household furnishings, firearms, and burial lots. 118 A filing is not required to claim the poor debtor's exemptions;
3.	Interests in retirement plans; 119 and
4.	Personal injury and wrongful death actions. 120 This exemption is unlimited in amount, and need not be set forth in a homestead deed.

B. Prepetition Debts. Section 522(c) of the Bankruptcy Code provides that exempt property is not liable during or after the case for any debt of the debtor that arose before the commencement of the case except: a debt for a tax or customs duty; a domestic support obligation that is exempted from discharge; a debt secured by a lien that is not avoided and not void; a debt secured by a lien that is a tax lien; and debts for fraud,

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defalcation, or willful and malicious injury by a debtor affiliated with an insured depository institution to any federal depository institution or regulatory agency acting as a conservator, receiver, or liquidation agent for that institution.

C. Waiver of Exemptions. Pursuant to section 522(e), a waiver of exemptions executed by the debtor in favor of unsecured creditors is unenforceable in bankruptcy as a matter of overriding federal policy.

D. Claiming Exemptions. Section 522(b), together with FRBP 4003, outline the procedure for claiming exemptions under the Code. Exemptions are listed on the debtor's Schedule C. Unless the trustee or a creditor files objections to the claimed exemptions within 30 days after the meeting of creditors held pursuant to section 341(a) of the Code, the exemptions are automatically allowed.

In Taylor v. Freeland & Kronz, ¹²¹ the Supreme Court held that the validity of exemptions may not be contested after the expiration of the 30-day objection period even though the debtor had no colorable statutory basis for the claimed exemption. Hence, it is crucial to analyze a debtor's exemption claims and timely object to unauthorized exemptions.

E. Exempt Property and Lien Avoiding Powers. The debtor has the power under section 522(f)(1) to avoid the fixing of a judicial lien, other than a judicial lien that secures domestic support obligations, to the extent the judicial lien impairs the debtor's exemptions. This avoiding power is limited to the amount the debtor is entitled to exempt under section 522(b). A lien impairs an exemption to the extent that the sum of the lien, plus all other liens on the property, plus the amount of the exemption the debtor could claim if there were no liens on the property, exceeds the value that the debtor's interest in the property would have in the absence of any liens. ¹²²

Under section 522(f)(1)(B), a debtor may avoid, to the extent it impairs the debtor's exemptions and subject to certain limitations contained in section 522(f)(3), a nonpossessory, nonpurchase money security interest in tools of the debtor's trade and similar items, health aids, and numerous other types of household goods other than automobiles. ¹²³

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9.202 Entirety Property.

A. Inclusion...