Chapter 7 Bankruptcy Exemptions Explained

Exemptions can be one of those bankruptcy issues that seem confusing to many filers. One reason for the complexity is that no standard guidelines exist across the states. Your state has its own way of dealing with exemptions even though bankruptcy is a federal affair. To help lessen the confusion, read below for a simple guide to bankruptcy exemptions.

Why Filers May Need Exemptions

Chapter 7 has both good and not-so-good sides to it. On one hand, filers can achieve quick and complete debt relief in a short amount of time. On the other hand, though, the relief can come at the expense of personal property. The rules about liquidating the property holdings of filers came about because of abuses by some who filed bankruptcy to get out of debt while those same filers retained enough property to keep themselves solvent. To that end, filers have limits on the values of their homes, vehicles, and other personal possessions.

Exemption Facts

These exemption explanations should get you ready to meet with your bankruptcy lawyer and find out about your unique circumstances and how filing chapter 7 will affect it.

1. The main reason exemptions exist is to stop the bankruptcy courts from taking everything a filer owns. Thus, many exemptions make allowances for work or business-related assets, heirloom jewelry, and more. What is not completely exempted may be partially exempted using a value. Also protected are certain government benefits, unearned income, used clothing and furniture, and more.
2. When determining your chances of having to surrender a piece of property, don't forget to deduct any outstanding loan balances to get an accurate figure. If you owe money on a vehicle, for example, deduct the loan balance from its value to determine the true value.
3. In some cases, the exemption can be improved if you meet the guidelines. Exemptions, for example, can be doubled for married couples who file chapter 7 jointly in some states. That means, for many, that you can keep more property. Another way to adjust the value of an exemption is to live in a state that allows you the choice of using either the state's exemptions or federal exemptions. Finally, those recently moving from another state might be able to use the exemptions of their previous state if they wish. Discuss the pros and cons of each of these options with your bankruptcy lawyer.

Speak with your bankruptcy lawyer about your assets and how they can be protected during chapter 7 using exemptions. Your relief does not have to come at the expense of your assets, so take action today.

For more information, contact a bankruptcy attorney near you.