For those who are concerned about keeping their personal property in a bankruptcy petition, it is important to understand how bankruptcy exemptions are applied. The federal government has laws protecting certain types and limits of property, called exemptions. Many states, however, have their own laws governing those same issues. In some states, the debtor may choose which exemptions to apply to their petition; however, most states mandate that the state exemptions take priority.
Bankruptcy Exemptions
Bankruptcy exemptions apply to those who file for chapter 7 bankruptcy and face liquidation of some of their personal property. In order to leave debtors with enough property to survive as an individual or family, the government mandates that they be allowed to keep certain types of property considered “necessary.” In general, those exemptions fall into a number of general categories, although they vary by state:
- Homestead exemption
- Automobile
- Household goods, clothing, and furnishings
- Burial plots
- Certain limits of jewelry, family photographs, and memorabilia
- Health aids
- Some percentage of earned but unpaid wages
- Most pensions up to specified limits
- Most ERISA-qualified IRAs up to specified limits
- Various forms of public benefits
- Tools of the trade
- Alimony and child support income
- Some types and values of insurance
- Some types of judgments and recoveries
In many of theses instances, there is a limit to the value of the exemption. If the debtor’s equity in the property is below that designated limit, they may keep their property. If their equity is above the limit and the property could conceivably be sold and the money used to pay creditors, the bankruptcy trustee may choose to do so.
Federal Bankruptcy Exemptions
Federal bankruptcy exemptions are allowable in a number of states; however, the majority of states mandate that state exemptions apply. It is important for someone considering bankruptcy to research these exemptions before making a final decision. It could make the difference between keeping their home and having it liquidated by the bankruptcy trustee.
- Homestead Exemption - $21,625
- Household goods – up to $550 per item, up to a total of $11,525
- Jewelry – $1,450
- Motor Vehicle - $3,450
- Tools of the trade - $2,175
- In addition, up to $10,825 of unused homestead exemption may be used as a wildcard to protect any type of personal property
Getting Legal Help with Bankruptcy Exemptions
It is not only important for a potential filer to understand the exemptions that apply in their state, they must understand how to calculate their equity and what that means to their ability to protect it. These are areas about which a bankruptcy attorney has the experience to advise a potential filer and help them make the decisions so crucial to the success or failure of a bankruptcy petition.
