Any resident of Indiana who is contemplating filing a petition for bankruptcy should be aware of the effect of exemptions from the claims of creditors that are provided under state law. The Indiana legislature has identified certain kinds of assets that cannot be claimed by creditors. While these exemptions apply to all creditor-debtor relationships, they are most effective in an individual bankruptcy proceeding.
An asset that is listed as being exempt from the claims of creditors means that the debtor can retain possession of the asset after the bankruptcy proceeding has been completed. For example, the debtor may owe money on a loan used to purchase an automobile. If the loan payments are current and if the debtor’s equity in the car is less than the limit on such an exemption, the debtor can continue to make payments on the debt and retain possession of the automobile after the court issues its order of discharge.
The most helpful exemptions begin with the family residence. If the debtor lives in the property, up to $17,600 in equity is exempt from the claim of mortgagee. If both husband and wife file a bankruptcy petition, the amount of the exemption may double. Under the so-called “wild card” exemption, the debtor may declare up to $4,000 of any real estate or tangible property exempt from the claims of creditors. Certain types of insurance policies are also exempt. The exact nature of the exemption depends upon the nature of the policy. Pensions owed to firefighters, police officers, public employees, sheriffs and state teachers are likewise exempt. Public benefits, such as workers’ compensation benefits, unemployment compensation and crime victims’ compensation, are exempt. A minimum of 75% of earned but unpaid wages are exempt. Federal bankruptcy law also provides certain exemptions to Indiana debtors, including Social Security benefits.