Bankruptcy is a solution to mounting debt and financial problems, but it is a solution that no one wants to have to resort to. The prospect of a Chapter 7 bankruptcy, also called a liquidation bankruptcy because the court is allowed to seize your assets and sell them off in order to pay your creditors back, is especially frightening, because the prospect of losing your home, car, and other assets and having damaged credit afterwards makes it almost impossible that you will be able to begin rebuilding your credit without having a place to live or a way to get to work. Luckily, there is something called a bankruptcy exemption, and several exemptions are available even to chapter 7 bankruptcy claimants that can allow you to keep certain assets and continue on with your life after bankruptcy with minimal disruptions.
Understanding the Bankruptcy Exemption Rules
It is important to note that there are two lists of possible exemptions:
- A federal list, and
- A state list.
Most states will require that you only claim exemptions that are on the state list; however, some states allow you to choose your exemptions from either the federal or state lists. A competent bankruptcy attorney can help you determine the specific laws in your state. However, in general, exemptions can be taken as follows.
- The most common Chapter 7 exemption is the homestead exemption. The value of this exemption varies from state to state, but in general, a large portion of the value of your home or the entire value may be exempt, allowing you to keep your home during the bankruptcy proceedings.
- The personal vehicle exemption is another common exemption – after having your car valued, if it is worth less than $3,000, you will be allowed to keep your vehicle. You will need to continue making payments on the vehicle, however, if there are any outstanding loans or balances due.
- Other common exemptions exist, including jewelry below a certain value; household goods and personal property such as furniture (again, if the value does not exceed a particular amount, which varies by state), retirement plans or benefits from public service jobs; life insurance policies, child support, and tools of the trade.
- The tools of the trade exemption is interesting because if the property is essential to your work, it is exempt no matter what the value is. So a mechanic will not lose his tools in a bankruptcy.
Getting Help
Knowing what is exempt will help you better keep the maximum amount of your property in a Chapter 7 bankruptcy. You should consult with an experienced bankruptcy attorney in order to determine the specific exemptions that may be available to you in light of your situation and the type of bankruptcy you plan to declare.
