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Chapter 7 Bankruptcy Exemptions

Posted By Albaugh Law Firm || 3-Jul-2018

Many people assume that they will lose all of their assets when they file for Chapter 7 bankruptcy. However, this is not necessarily true. Under the Bankruptcy Code, debtors can keep certain assets from creditors and their trustee. The property that debtors choose to keep is known as “exempt property.” When the debtor files their case, they can claim property as exempt. As long as no objections are filed to the exemptions, they will become final after the meeting with creditors. This meeting is commonly referred to as the “341 meeting.” Exempt property is not considered property of the bankruptcy estate, and you are allowed to keep it after the bankruptcy case closes.

How Chapter 7 Filers Keep Their Property

The majority of Chapter 7 bankruptcy cases are no-asset cases, which means debtors don’t have to give up anything to the trustee. Under the exemption system, debtors are permitted to keep their means for day-to-day living from their creditors. Because the whole point of bankruptcy is to allow debtors to get a fresh start, debtors need to have a sense of stability. Furthermore, household items and personal effects that have been used have little resale value and are rarely worth enough to repay creditors.

Federal & State Exemptions

Congress has made a set of exemptions in the bankruptcy code, though each state can choose to opt-out of such exemptions in favor of state law exemptions instead. Sixteen states allow debtors to choose between federal and state exemptions. The other 34 states require use of their own exemptions. In order to use exemptions provided by the state, you will need to have lived in that state for at least two years before filing for bankruptcy. If you haven’t lived in the state for two years, you will have to use the exemptions for the state that you lived in six months prior to the two-year lookback period.

Liens & Bankruptcy Exemptions

It’s important to note that exemption amounts only apply to your equity in an asset. If you co-own assets, only your share of the equity will be relevant to the exemption. If an asset is subject to a mortgage or a lien, your equity will be the value of the item after the amount of the lien or liens has been deducted.

In general, your trustee won’t sell an asset if you have slightly more equity than the exempt amount. A trustee will only sell your assets if you have enough nonexempt equity to make a substantial payment to creditors.

Common Exemptions

Bankruptcy exemptions are intended to allow you to have the necessary means to live and work. Exemptions protect debtors from aggressive creditors who would like to seize every asset and leave the debtor destitute. Although each state has its own exemption rules, the following are usually offered by most states:

  • Wage Exemption
  • Homestead Exemption
  • Auto Exemption
  • Household Goods Exemption
  • Wild Card Exemption

Common excluded property under exemptions include:

  • Pension Rights & 401(k) Plans
  • IRAs (Up to $1 Million)
  • Social Security Benefits
  • Unemployment Benefits
  • Disability Benefits
  • Veterans Benefits
  • Alimony or Support Payments
  • Personal Injury Damages Award

How Do I Know if Chapter 7 Bankruptcy Is Right for Me?

Are you overwhelmed by debt and not sure where to turn? Then bankruptcy might be the best option to get relief from your debts. If you’re considering filing for bankruptcy or just looking around for other ways to handle your debt, contact our St. Augustine bankruptcy attorneys to discuss your options. We have the skills and resources you need to get your financial affairs back in order.

Call (904)-637-1839 to set up your complimentary case evaluation today.

Categories: Bankruptcy, Chapter 7