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Exemptions are a very important consideration when filing bankruptcy. These come into play during the Chapter 7 bankruptcy procedure. The Chapter 7 bankruptcy is referred to as liquidation bankruptcy as it leads to the liquidation of most of the assets. Many have a perception that almost all assets are lost during Chapter 7 bankruptcy. However, they must not be aware of some federal exemptions which can help in safeguarding essential assets to restart or to lead basic life after bankruptcy. Know more about chapter 7 bankruptcy and its characteristics at https://www.recoverylawgroup.com/bankruptcy/.
State and/or federal exemptions
The exemptions available to the bankruptcy filer can be of two types. One can be referred to as federal exemptions and the other can be state exemptions. Around 20 states of the United States of America provide for an option for the bankruptcy filer to choose the exemption he/she would like to opt. They can either opt for State exemptions or federal exemptions and not both. While the remaining majority of states require bankruptcy filers to opt for the state exemptions and not the federal ones. The state exemption can be lower or higher than the federal exemption depending on various factors like mean income, employment, cost of living, etc.
Characteristic of exemptions
Exemptions are usually facilitated per head and if a couple is filing for bankruptcy, the exemption amount is double under most circumstances. However, it is important to note that the exemption of one spouse cannot be used to protect the asset in the name of another spouse. Even though the exemption is double for a couple, the same should be used specifically on their owned assets respectively. The amounts specified as per Federal, or state exemptions change periodically in about 3 years based on inflation, cost of living, and various other aspects.
Different types of exemptions
Various types of Federal exemptions available for the disposal of a bankruptcy filer can be listed as follows-
- Homestead Exemption
This exemption basically allows you to protect your home up to an amount of $25,150. This exemption can be used to protect the equity in your primary home, unimproved land that is meant to be a primary home in the future or a mobile home that is on your rental property. There can be only one property that can use the homestead exemption, hence, the secondary home, investment real estate properties, etc., cannot be safeguarded using the homestead exemption. The exception to this would be if a couple is living separately in two different homes, the exemption amount of $25,150 can be used to safeguard two homes.
- Personal property exemption
Personal property exemption as the name suggests is used to protect the personal properties of the individual which may include furniture, appliances, clothes, household goods, etc. The maximum exemption for the same is $13,400 per couple. This exemption has a cap of $625 per item and the assets safeguarded should not breach $625 individually. Some other exemptions that apply to personal properties can be listed as follows-
o $1,700 worth of jewelry is exempt
o Any tools or equipment essential for work up to $2,525 are exempt
o Any future life insurance proceeds up to $13,400 of accrued interest and/or dividends are exempt
o $4,000 of equity or value of a car per spouse is exempt
o Any health aid facilitated is exempt fully without any monetary cap
- Support payment exemption
Any alimony received or any child-support payment received or any state or federal benefits like social security, CARES payment, veteran benefit, unemployment benefits, disability payments, etc. Any insurance policy payments received as a dependent can also be exempt.
- Injury award exemption
Any compensation or award received from a lawsuit that is specifically intended as a health aid is exempt for up to $25,150. However, if the award has no specifics or is directed towards pain and suffering, none of the award amounts is exempt.
- Wildcard exemption
The wildcard exemption as the name suggests can be used to safeguard different categories of assets including cash, money at banks, and investments like shares, or can also be used to add additional exemption to an existing exemption to safeguard more of that asset. It can also be used to safeguard a second vehicle. The exemption amount is $1,325 in addition to any unused homestead exemption.
- Retirement account exemption
IRAs and Roth IRAs worth $1,362,800 are exempt and tax-exempt retirement accounts are fully exempt irrespective of their worth.
By the above non-inclusive list, it is pretty much clear that even under Chapter 7 bankruptcy, exemptions can help in safeguarding many different assets that are essential to make life easier for an individual. Consult your experienced attorney from Los Angeles & Dallas, TX by dialing 888-297-6203 right now!