At Howard Law, P.C., our Moreno Valley consumer bankruptcy lawyers often counsel clients about how they may exempt their property from a bankruptcy. Most states, including our own California, permit exemptions valued at up to a certain dollar amount. In some cases, debtors may determine the dollar amount used to value their own property, but it is always best to do this honestly. Not only is honesty the best policy when dealing with courts, but there can be unintended consequences for too-low valuations. In Nessan v. Lovald, a South Dakota debtor found this out firsthand when he claimed $1 each in exemptions for a truck, a boat and a potential legal claim. The trustee in his case paid him $3 and took the property for the estate. The bankruptcy court, district court and Eighth U.S. Circuit Court of Appeals all upheld the move.
Curtis Nessan listed a pickup truck and a boat with a motor and trailer when he filed for Chapter 7 bankruptcy in 2010. He claimed $1 each in exemptions for the truck and boat. The loans were through BankWest, which also sold Nessan a disability insurance policy from AIG. AIG had been making payments after Nessan became disabled, but stopped; Nessan intended to sue for bad faith and performance of the contract. He also valued this claim at $1. The trustee objected to the exemption of the legal claim and moved to declare property of the estate all equity created by any future loan payments. The bankruptcy court agreed, ordering that all equity in excess of the $1 exemption become estate property. The trustee then sent Nessan $3 and ordered him to turn over the truck and boat. Nessan refused, saying the order did not support a request to turn over the property. In response, the trustee successfully moved for an order requiring Nessan to turn over the property and legal claim.
Nessan appealed to the district court, arguing that South Dakota law permitted him to exempt the property, not just the specified amount of interest in that property. The district court affirmed, so Nessan appealed to the Eighth Circuit. South Dakota law permits debtors to exempt personal property not to exceed a value of four to six thousand dollars (depending on family status). Nessan argued that this provision permits him to exempt property entirely by claiming $1 exemptions for each item. The Eighth Circuit disagreed, saying the "wildcard" exemption is not like the absolute exemptions available for personal property like family pictures or clothes. The exemption he used has a dollar-amount limit, so Nessan's $1 exemptions simply used $3 of the total value available. Thus, the court said, there was no error in ordering him to turn over the property in exchange for the $3 to satisfy his interest in it.
Vincent Howard and our Anaheim personal bankruptcy attorneys wonder whether Nessan was represented by an attorney in this case. An experienced bankruptcy lawyer would likely be able to anticipate this problem, and would likely have discouraged Nessan from attempting it in the first place. Because the boat and truck were underwater, Nessan had no equity in it, so perhaps a $1 exemption was even too high; but it might be wiser in that case to accept its loss as a part of the Chapter 7 liquidation process. Chapter 7 bankruptcy requires the filer to sell off most assets and use the proceeds to pay creditors, which is rough for many people. But Vincent Howard and our Chino individual bankruptcy lawyers believe the quick discharge of remaining debts makes it a worthwhile choice if you're ready to work hard at releasing your debts and starting over.
Led by partner Vincent Howard, Howard Law represents clients across California who are seeking a fresh financial start through bankruptcy. If you'd like to talk to an experienced attorney about your options and your situation, call us today at 1-800-872-5925 or send us a message through our website.