Friday, October 14, 2011

Virginia's increased bankruptcy exemptions benefit debtors

As of July of this year, Virginia finally adjusted some of its bankruptcy exemptions for about 20 years of inflation (the amount of time that passed since the exemptions were last revised).  The motor vehicle exemption is now increased from $2,000.00 to $6,000.00, and the "family gun" exemption is increased to $3,000.00.

Moreover, debtors are specifically allowed by the statute to convert their non-exempt property to exempt property by selling something that would otherwise go to the bankruptcy trustee and buying a car or a firearm to be exempt up to the amounts above.  This is allowed even specifically in contemplation of bankruptcy.  In bankruptcy lawyers' parlance it is known as "bankruptcy planning."

An interesting issue remains with the increased car exemption of $6,000.00.  I have had a number of clients who had two vehicles each worth about $2,000-$3,000.  Both of such vehicles could be brought under the $6,000.00 exemption (and at least some software, after the 2011 updates, allows one to do so), while the statute on its face seems to permit only one vehicle to be so exempt (by stating that only "[a] motor vehicle" can be "exempt from creditor process").

Trying to exempt more than one vehicle under the same exemption (Section 34-26(8)) is an aggressive stance, whose fate will likely be decided by the courts in the near future.  If past practice is any indication, I would not be too optimistic about upcoming rulings...

Nonetheless, an increased personal vehicle exemption is well overdue and is certainly a welcome change.

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