People who are filing for bankruptcy do not make their decision lightly as it will affect them severely. They file because they are in an extreme financial crisis and want a new start but especially in chapter 7 bankruptcy case they fear losing all their assets to the court in return for their discharge of debts. This is the reason there is a bankruptcy law for exemptions that is properties that are necessary for a person to start fresh after the bankruptcy case is exempted. Assets like a car, home, furniture, etc are exempt properties.
Chapter 7 bankruptcy
Chapter 7 bankruptcy is also known as liquidation bankruptcy, where most of your assets will be sold by your bankruptcy trustee and the money will be divided among your creditors. After all of the non-exempt properties are sold and your debt is paid off by that amount, the rest of your debts will be discharged.
There are exemptions explained above in the chapter 7 bankruptcy case where sometimes all or some assets are exempted, every state has its own exemptions list which can either co-exist with the federal exemption list or completely replace it. It is very important for the debtor to consult a local bankruptcy attorney for guidance.
Here are the common exemptions that are there in chapter 7 bankruptcy case-
- Homestead exemption-
Most of the debtors worry about their primary residence being taken as non-exempt property and sold off, especially in chapter 7 bankruptcy where your assets are taken and sold off to pay your creditors but the federal law and the state law allow the debtor a primary residence to be considered under exempt property but there are limits to the amount protected under the homestead exemption.
For example, the federal homestead exemption has a limit of $20,000 but every state has its own limits.
- Car or vehicle exemptions-
A vehicle might be protected from liquidation but each state has its own limits. The exemption law for one state might give no protection for a vehicle but in another state, it might give a limit that equals the value of a full car.
- Exemption of personal property-
The good thing is that there is a wide variety of personal property that comes under exemption law. Items like jewelry, clothes, furniture of a house, etc. are considered exempt properties but there might be a limit per item or total limit to this kind of assets.
- Wildcard exemptions-
This is a catch-all kind of exemption for the property which cannot be considered in a category of property that exceeds its maximum value of the exemption.
In this case, the debtor can save more of his or her property from going into the bankruptcy estate. Unfortunately, this exemption is not there in all the states and is also limited in value.