Bankruptcy can be a stressful and overwhelming experience, but understanding the bankruptcy exemptions can make the process a little bit easier. Bankruptcy exemptions are laws that allow debtors to protect certain assets from being liquidated by the bankruptcy court. These exemptions can help you keep some of your property, even if you are filing for bankruptcy.
What Are Bankruptcy Exemptions?
Bankruptcy exemptions are laws that protect certain types of property from being taken and sold to pay off your debts. The purpose of these exemptions is to allow debtors to keep some of their property and start over after bankruptcy. The exemptions vary by state and by the type of bankruptcy you file, but they generally include items such as your home, car, retirement accounts, and personal belongings.
How Are Bankruptcy Exemptions Used?
When you file for bankruptcy, you must list all of your assets and debts. This list is known as the bankruptcy schedule. The bankruptcy trustee will review your schedule and determine which of your assets can be sold to pay off your debts. However, if an asset is exempt, you can keep it and the trustee cannot sell it.
For example, let’s say you own a home worth $200,000 and you owe $150,000 on your mortgage. If your state’s homestead exemption is $50,000, you can exempt your home from the bankruptcy proceedings. This means that you can keep your home and the bankruptcy trustee cannot sell it to pay off your debts.
It’s important to note that there are limits to the exemptions. In some cases, you may only be able to exempt a certain amount of equity in the asset. For example, if you own a car worth $10,000 and you owe $8,000 on the car loan, you have $2,000 in equity. If your state’s motor vehicle exemption is $3,000, you can exempt the entire car because it is below the exemption limit. However, if the exemption limit is $2,500, you can only exempt $2,500 of the car’s value, and the trustee may sell the car to pay off your debts.
Types of Bankruptcy Exemptions
There are two main types of bankruptcy exemptions: federal and state. The federal bankruptcy exemptions are available in all states, but some states allow debtors to choose between the federal exemptions and the state exemptions. Other states require debtors to use the state exemptions.
The federal bankruptcy exemptions include exemptions for your home, car, household goods, retirement accounts, and personal injury awards, among others. The state exemptions vary by state, but they generally include exemptions for your home, car, personal belongings, and other assets.
It’s important to work with a bankruptcy attorney to determine which exemptions are available in your state and which exemptions will be most beneficial to you.
Conclusion
Bankruptcy exemptions can help you keep some of your property and start over after bankruptcy. Understanding the exemptions and working with a bankruptcy attorney can make the bankruptcy process a little bit easier. Remember, exemptions vary by state and by the type of bankruptcy you file, so it’s important to work with a qualified bankruptcy attorney who can guide you through the process and help you protect your assets.
| Property Type | Exemption Amount |
|---|---|
| Homestead | $25,150 |
| Household goods and appliances | $13,400 |
| Jewelry | $1,700 |
| Tools of the trade | $2,525 |
| Personal injury compensation | Unlimited |
| Retirement accounts (e.g. 401(k), IRA) | Unlimited |
| Public benefits (e.g. Social Security, unemployment) | Unlimited |
| Alimony and child support | Unlimited |
| Life insurance policy (cash value) | $13,400 |
| Health aids | Unlimited |
| Motor vehicle | $4,000 |
| Wildcard | $1,325 plus $12,575 of any unused homestead exemption |
Please note that these are the federal bankruptcy exemptions as of the knowledge cutoff date (2021). However, it’s important to keep in mind that bankruptcy laws can vary by state, so it’s always best to consult with a bankruptcy attorney to determine which exemptions may apply to your specific situation. Karra L. Kingston Esq. has helped many people get out of debt and start over. If you are thinking about filing bankruptcy, Karra Kingston can help you get a fresh start.