Are my Firearms protected from my Creditors in a Bankruptcy case?

It’s no secret that Kelsey & Trask, P.C. is a Second Amendment friendly law firm. While most of our firearms practice is dedicated to licensing and firearms law compliance issues, firearms and Second Amendment issues come up in many of our other practice areas as well.

Firearms are often a good investment; they hold their value well, do not depreciate significantly, and for certain items, can appreciate significantly in value, particularly for Curio & Relic items and other historical firearms. Many firearms owners do not keep these items purely for their investment potential, but rather for personal protection or because their employment requirements requires them to keep and maintain a firearm.  In either instance, whether or not you can keep your firearms if you file for bankruptcy is an important question.

How are firearms treated in bankruptcy?

Like any other asset, firearms must be disclosed to the bankruptcy court and are subject to acquisition by the trustee if they are not exempt under the Federal or Massachusetts exemptions. There are a number of exemptions that may be used to establish the exemptability of firearms. Ultimately, the amount of the allowable exemptions may be affected by the debtor’s desire to exempt other personal property, but generally speaking, the following exemptions are available to protect a debtor’s firearms:

Federal Exemptions:

11 U.S.C. § 522(d)(5): $1,150.00, which is federal catch-all exemption and may be applied to any personal property owned by the debtor;

11 U.S.C. § 522(d)(5): Up to $10,825.00 of unused home equity not already exempted under 11 U.S.C. § 522(d)(1);

11 U.S.C. § 522(d)(6): $2,175.00 for tools and equipment used in business. For this exemption to be applicable to the debtor, the debtor must establish that the items are necessary for the debtor’s trade, employment or business.

Massachusetts Exemptions

A debtor filing for bankruptcy in Massachusetts may elect either the Federal exemptions or the Massachusetts exemptions. Massachusetts exemptions applicable to firearms ownership are as follows:

M.G.L. c. 235 § 34(10): The uniform of an officer or soldier in the militia and the arms and accoutrements required by law to be kept by the officer or soldier is fully exempt under the law. For this exemption to be applicable to the debtor, the debtor must establish that his status as an “officer or soldier” (e.g., a police officer, a National Guard member, or member of the U.S. Military) who, per the requirements of his or her duties, must personally purchase and maintain firearms for the performance of their duties.

M.G.L. c. 235 § 34(5): $5,000.00 for tools and equipment used in business. Like the federal exemptions, for this exemption to be applicable to the debtor, the debtor must establish that the items are necessary for the debtor’s trade, employment or business.

M.G.L. c. 235 § 34(17): Up to $6,000.00, representing the debtor’s aggregate interest in any personal property, not to exceed $1,000 in value, plus up to $5,000 of any unused dollar amount of the aggregate exemptions provided for the exemption of household furnishings, tools of the trade and a motor vehicle.

If you are facing bankruptcy and have personal and other property, such as a home and retirement accounts that you want to ensure is protected through the bankruptcy process, contact Attorney Matthew P. Trask to learn more about how to protect your assets and find your financial freedom.

2 cows, 12 sheep, 2 swine and 4 tons of hay.

Are you overwhelmed with debt, but worried about your sheep? Bankruptcy might be the answer to your problems.

When filing a Bankruptcy as a resident of Massachusetts a debtor can choose to use the exemptions allowed under either State or Federal law, but you must choose one or the other. There are many exemptions that are similar under both schemes, such as the exemption of most qualified retirement plans.

There is one significant difference between the Massachusetts and Federal exemptions, though: under the Massachusetts' exemptions you can exclude from the bankruptcy 2 cows, 12 sheep, 2 swine and 4 tons of hay (M.G.L. c. 235 s. 34)

There is also one other significant difference worth mentioning between the Federal and Massachusetts exemptions: the equity in a residence is exempt under the Massachusetts exemptions up to $500,000 but only $20,200 in the Federal exemptions. Of course, who needs a home so long as you have your flock.

UPDATE: The Massachusetts Exemptions have recently changed. For more information read our post on the changes: New Massachusetts Property Exemptions: The Return of 2 Cows, 12 Sheep and 2 Swine.

My house is in a trust. Is it protected in a Bankruptcy?

Question of the week: My house is held in a nominee trust, primarily for estate planning purposes. If I were to file for bankruptcy, would my house be protected if I filed a Chapter 7 Bankruptcy?

Answer: There are a number of factors that all address whether or not a debtor's house is exempt from the bankruptcy estate, or whether the bankruptcy court could require the debtor to sell his property to pay some (or all) of his debts. For example, whether or not the debtor actually resides in the subject property or if it is held as an investment property; the total net equity in the property, including mortgages or other liens; and the debtor's exemption elections could all affect how a debtor can protect (or, conversely, risk) a house and your other various assets upon filing a Chapter 7 petition.

First, in Massachusetts, recall that there are two separate exemptions schemes which define what types of property you are allowed to retain, and cannot be sold by the Chapter 7 Trustee to be distributed to your creditors: Federal Exemptions and Massachusetts Exemptions. Generally speaking, the federal exemptions are better suited to protecting your tangible personal property, such as automobiles, bank accounts, etc., but cannot protect more than approximately $21,625.00 worth of equity in a homestead. In situations where you are seeking to protect more than $21,625 in home equity, the Massachusetts Exemptions can protect up to $500,000.00 in home equity, at the cost of significantly reduced exemptions for personal property (i.e., $700.00 equity in an automobile, for example). The caveat is that in order to benefit from the Massachusetts Exemptions, you must file and record a Massachusetts Declaration of Homestead.

Ownership of real property through a nominee trust creates a legal impediment to protecting your equity in your home, however, in certain circumstances, the court has essentially ignored this impediment.

In situations where a trust is the legal titleholder of the debtor's residence, and not the debtor, there is a legal question of whether the debtor is still permitted, by law, to file a Massachusetts Declaration of Homestead. A 2007 Massachusetts Bankruptcy Court case titled “In re: Edward R. Szwyd” decided that “property held in trust is not eligible for Homestead protection. Only individuals may claim a Homestead.” However, in Szwyd, the debtors nevertheless filed a homestead declaration and the Court allowed the Homestead to stand. In this case, the debtor was the sole trustee and beneficiary and no trust existed under Massachusetts law, because the legal protections of the trust merged into the sole trustee and beneficiary, making the debtor the sole beneficial “owner” for purposes of the bankruptcy code.

UPDATE: The law in this area has developed rapidly and swung widely on the issue since 1995. The most recent decision, and currently viewed to be the controlling law with respect to Massachusetts bankruptcy case, is In re Olga M. Rodrigues, 2010 WL 716192 (Bankr. D. Mass., 2010). The Rodriguez decision looked to the statutory language of the Massachusets Homestead Act, which permits a person who “rightfully possess[es] the premises and occup[ies] said home as a principal residence” to file a Declaration of Homestead on the property.

As long as the debtor resides in the house, the debtor may file a Declaration of Homestead to protect the debtor’s interest in the home, even if that interest is little more than a right to ownership upon revocation of the trust. Debtors should take the Rodriguez decision to mean that even in the case of a self-settled trust, nominee trust or merged trust (or any trust where the trustee has significant discretion regarding the trust assets) that trust may be breached by the trustee, and the assets included in the bankruptcy estate. However, the legal form of ownership of the debtor’s residence (including whether the property is held in trust) will no longer serve as a bar to the election of Homestead Act protection, and provides a means of exemption under the Massachusetts bankruptcy exemptions.

If you own property that is held in a trust, and are considering bankruptcy, it is important that you understand the trust which is the legal titleholder to your property as well as the nuances of the United States Bankruptcy Code. If you have questions regarding how to protect your assets through a Chapter 7 Bankruptcy, contact Kelsey & Trask, P.C. for a one-hour consultation at 508-655-5980.

What are Exemptions in Bankruptcy and do I have a choice of Exemptions?

When filing for Bankruptcy certain property of the debtor is exempt from the Bankruptcy estate, which means that it is not subject to being taken by the Trustee and used to pay your debts. In simpler language, exempt property is property you get to keep.

When filing a Bankruptcy as a resident of Massachusetts you can choose to use the exemptions allowed under either State or Federal law, but you must choose one or the other.

There are many exemptions that are similar under both schemes, such as the exemption of most qualified retirement plans. The most significant difference is that under the Federal exemptions you are only allowed to exempt approximately $20,200 in primary residence equity, while under the Massachusetts exemptions you can exempt up to $500,000 in primary residence equity (assuming you have filed a valid Declaration of Homestead). This can be of significant importance if you are trying to stay in your home.

The exact amounts of exemptions are subject to change and you should consult with an attorney to obtain the most current figures and to decide which option you should choose.

UPDATE: The Massachusetts Exemptions have recently changed. For more information read our post on the changes: New Massachusetts Property Exemptions: The Return of 2 Cows, 12 Sheep and 2 Swine.