What is a Bankruptcy Exemption?
Written by AskTheLawyers.com™ on behalf of David Shuster with Shuster Law, PLLC.
In simple terms, exemptions in bankruptcy refer to the property you are allowed to keep after filing versus the assets you may be required to surrender in order to pay off certain debts. The assets that qualify for exemption can vary widely from state to state as well as from one type of bankruptcy to another.
For example, in Chapter 7 bankruptcy, also referred to as “clean slate” or “fresh start” bankruptcy, filers can typically keep all of the property they owned prior to the bankruptcy, such as their home, vehicle, and any exempt property. However, in a Chapter 13 bankruptcy, the filer will typically be required to pay off at least a portion of their debts and may be required to sell non-exempt property to help pay off creditors.
Bankruptcy exemptions may be state or federal.
Not only do bankruptcy exemptions vary from state to state, but federal exemptions may also apply. However, a filer may be able to choose which set of exemptions they want to use in their bankruptcy; depending on the situation, federal exemptions may be more beneficial for their circumstances than state exemptions, or vice versa. Some of the most common bankruptcy exemptions under federal law include a filer’s house, a variety of belongings depending on their value, and even support benefits such as child or spousal support. It’s also important to remember that if you have not lived in your current state for at least two years, the exemptions for that state may not apply to your case.
Exemptions may apply to the value of an item rather than the item itself.
Exempt and non-exempt property can be difficult to understand, but it may help to note that in many cases, the property itself is not exempt, rather the property up to a certain value is exempt. For example, a vehicle may be exempt up to $5,000. This means that if the vehicle costs $5,000 or less, the filer can probably keep their vehicle. However, if the vehicle is worth more than $5,000, the bankruptcy trustee may be able to sell the trustee and give the filer $5,000 from the sale.
An attorney may be able to help you hold onto important pieces of property in a bankruptcy.
Bankruptcy law is notoriously confusing, as is the list of exempt versus non-exempt items in the different types of bankruptcy for different states. One of the easiest ways to figure out what you can and can’t keep when filing for bankruptcy is to reach out to an experienced bankruptcy attorney. Not only can these attorneys spell out in clear terms which of your assets you will be allowed to keep, they may also be able to help you hold on to certain pieces of property by making exchanges. Similarly, a bankruptcy attorney may be able to negotiate with creditors, convincing them to settle with you for a lower amount. A good bankruptcy lawyer may also be able to assist with credit repairs and offer advice for future stability.
To learn more about bankruptcy exemptions or to discuss your case, reach out to a bankruptcy attorney in your state.