The concept of Chapter 7 bankruptcy exemptions is very important to understand as it will determine what property you will be able to keep if you file for Chapter 7. If a property is exempt it means that the trustee cannot sell it to pay off your debts. Different states have different exemption rules so it is also vital that you check in the State where you will be filing as to what is exempt and what is non exempt. This article will give you a good overview.
Although each of the US States has their own exemptions there are 17 States which will allow you to choose either to use their exemptions or to use instead a separate group of exemptions devised by Congress. These are called federal bankruptcy exemptions.
If you are having trouble figuring out what is exempt and non exempt in your State consider a consultation with an attorney in that State as exemptions fall in different categories. The most well known exemption is that of your residence which is why it is often called the homestead exemption. Again, the amount of the value of your property that will be exempt are different from State to State. For example, the most that can be exempt in Alabama is $5000 whereas there is no upper maximum limit on your home’s value in Texas.
You should also note that if you own your property jointly with your husband or wife then the requirements are different again according to which State you live in. If it all sounds too complicated then seeking advice from a specialist bankruptcy attorney may ease the stress.
Another frequent exemption is that of your car. Once again, the value which is exempt is set by the local State and as long as your vehicle is worth less than this minimum set which is commonly around $3000 then you will not have to give it up.
However, it is worth noting that this is calculated on the equity value of your automobile which is calculated by researching the market value of your car and then taking away any debt you owe on it. If this value is below the exemption level then you will normally be allowed to keep it but if is above the level you could try offering to pay the difference if keeping the car is vital to you. If you have a lease or loan agreement for the car and you decide to exempt it you will of course still be liable for any outstanding payments on it.
Under Chaper 7 bankruptcy further exemptions can be applied to items such as jewelry, your clothing, some electrical household appliances, child support payments, any items necessary for your work such as tools and financial plans for your retirement.
Items that are not exempt are things such as hobby collections like stamps or coins, your bank accounts and financial investments like stocks, bonds or another car unless needed for your work as mentioned above. All these categories are subject to each State’s local law.
Part of the process of filing Chapter 7 bankruptcy will be to compile a thorough list of all the items you are claiming exemption for. This list will need to include a description of the item, it’s value both market and exemption. Any interested parties will be allowed to view this list and examine what you are claiming and object if they see fit. However, if, for example, a creditor objects to a certain exemption they will need to prove why they think it should be not allowed, it will not happen automatically that the exemption is removed from your list.
It is a common misconception that once you declare bankruptcy everything and anything is taken away from you and sold to pay your debts. You will not be left with nothing as is evidenced by the Chapter 7 bankruptcy exemptions law, it will simply allow you to honestly pay those debts that you can and move on from those that you can’t with a clean slate.