Indiana Bankruptcy Exemptions

Indiana bankruptcy exemption laws protect property in bankruptcy and are essential to a fresh start. Because bankruptcy exemptions protect essential assets only, not unnecessary luxury goods, it's essential to become familiar with them before filing for bankruptcy to avoid a costly property loss.

Using Exemptions When Filing for Bankruptcy in Indiana

Indiana is known as an "opt-out" state, meaning using the federal bankruptcy exemptions isn't a choice for residents. You're limited to Indiana's state exemption laws and federal nonbankruptcy exemptions.

How to Verify Available Exemptions in Indiana

State exemptions change periodically. It's essential to verify availability, current amounts, and qualifications through research or by consulting a local bankruptcy attorney. A local bankruptcy attorney will ensure a smooth and uneventful bankruptcy by complying with filing requirements and helping you protect all possible property.

How Long Must You Live in Indiana to Use Its Exemptions?

It's tempting to move to a state with more generous bankruptcy exemptions when filing for bankruptcy, but it doesn't work that way. To prevent people from abusing the system, filers must have lived in the state for at least two years. Otherwise, they must use the previous state's exemptions. Here's how it works.

• If you've made your permanent home (your "domicile") in your current state for at least two years, you can use the state's exemptions (or the federal exemptions if allowed).
• If your domicile hasn't been in the same state for two years, the rules get more complicated: you'll choose the state you lived in the longest during the 180 days immediately before the two years before filing.

Did you get that? If not, here's a way to figure it out. Count back two-and-a-half years, then ask yourself where you lived the longest during the first six months of that two-and-a-half-year period.

Example. Suppose you planned to file on January 1, 2027. Your two-and-a-half-year period would start on July 1, 2024, and you'd qualify to use the exemptions of whichever state you resided in the most from July 1, 2024, through December 31, 2024. You wouldn't have to file your case there, but you'd use that state's exemptions.

Special Homestead Exemption Rules

The homestead exemption protects your ownership interest in your home. You'll need to read your state's homestead statute to determine the specifics, such as the amount of equity and acreage covered, whether the exemption protects a manufactured home, and whether you need to file a homestead exemption with the county clerk. In all states, though, the property must be your residence, and you'll need to comply with a federal timing law.

Otherwise, your homestead exemption is capped at $214,000 if you file on or after April 1, 2025, an amount that changes every three years. This cap won't apply if you bought your home with home sale proceeds from that state. (11 U.S.C. § 522(p); amount valid April 1, 2025, to March 31, 2028.)

What Happens to Nonexempt Property in Indiana Bankruptcy?

It depends on the chapter you file. In Chapter 7 bankruptcy, you lose property not covered by an exemption. The bankruptcy trustee responsible for managing your case will sell the property for the benefit of your creditors.

In a Chapter 13 bankruptcy, you can keep all your property. However, that luxury comes at a price: you'll pay your creditors the value of any property not covered by an exemption in your Chapter 13 repayment plan.

For example, say you own a car outright worth $3,000, and your state has a vehicle exemption of up to $5,000. Here's what would happen in each chapter.

• Chapter 7 bankruptcy. You'll get to keep your car because the exemption would protect the equity fully. If your vehicle were worth $15,000 instead, the bankruptcy trustee would sell it, pay you $5,000 for the exemption, and distribute the rest to your unsecured creditors.
• Chapter 13 bankruptcy. You wouldn't need to pay your creditors extra through your repayment plan. However, if the car were worth $15,000, you'd need to pay your creditors at least $10,000 (minus sales costs) through your plan.

These examples don't account for a vehicle loan. You'll find more information about protecting financed homes and cars in an Indiana bankruptcy below.

Can You Keep a Financed Home or Car in an Indiana Bankruptcy?

Many people wonder if they can wipe out a home mortgage or car loan and keep the property without paying for it. The simple answer is "No." If you still owe a balance on your mortgage or car loan, you must pay as agreed to prevent the lender from foreclosing or repossessing the property.

That's because when you purchased it, you gave the lender a property "lien." The lien created a secured debt, allowing the lender to take back the property if you don't pay as agreed, even in bankruptcy.

Protecting Financed Property in Chapter 7 Bankruptcy

Chapter 7 doesn't have a mechanism to catch up on a mortgage or car payment over time, so the payment must be current. You'll lose the property if you're behind on payments and file for Chapter 7. The lender will ask the bankruptcy court to allow it to proceed with foreclosure or repossession during the bankruptcy, or wait until Chapter 7 ends.

Protecting Financed Property in Chapter 13 Bankruptcy

You don't lose property in Chapter 13. However, before the bankruptcy judge approves or "confirms" your plan, you must prove you earn enough to make the monthly payment and pay the late payments by the end of the three- to five-year plan. Some filers can pay less on financed property if they qualify to reduce an auto loan to the car's value or strip a junior mortgage, credit line, or lien from a home.