Rep. Delaney has introduced HB 1034 which modifies the bankruptcy exemptions permitted in Indiana and would seem to have some unintended consequences. Someone going bankrupt in Indiana is allowed to exempt, under IC 34-55-10, certain kinds of property in certain amounts: $300 in cash and deposit accounts, $15,000 in residential property, $8,000 in other kinds of tangible property. HB 1034 would allow a debtor to pile unused portions from one kind of exemption into other kinds. So, I guess the debtor could exempt $23,300 in cash if that’s all he or she had.
This would also have the effect of altering a creditor’s ability to collect a judgment against a debtor. In an attempt to collect on a judgment, typically a creditor can only get a court order on a debtor’s assets to the extent they are not exempt. So, if you go to freeze a bank account, typically you can only get an order if the balance exceeds $300. This bill raises the prospect that you’d have to show the debtor had aggregate assets in excess of $23,300.
Update The bill has passed the House 65-30, but there was an amendment that limited the amount of cash you could have on hand to $10,000. So, if a landlord has, say, a $1,000 judgment against a former tenant for back rent, and he finds the tenant with $10,000 in a bank account, the landlord couldn’t get at it to satisfy the debt.
I guess I don’t mind these exemptions so much for bankruptcy considerations – there is a limit on how frequently you can file bankruptcy – but as an ongoing shield against creditor where the debtor isn’t filing bankruptcy, I think it’s too unfair to the people the debtor has stiffed.
In my understanding, the purpose of the federal exemption for house equity (which Indiana provides for with its own statutes) was so that a Debtor that declared bankruptcy would not be forced to vacate his house. However, if you allow the Debtor to switch that exemption to other assets, the “purpose” of the original exemption is moot, and the creditors are screwed even further for no good reason.
I don’t like this bill.