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Exemptions From Property Protection in Bankruptcy
In a bankruptcy, no one loses all they own. You’ll probably be able to maintain part of the equity in your home, furniture, cheap automobile, and retirement account. The specifics, meanwhile, differ across states.
There are regulations governing exemptions in every state, but some of them let you select between state and federal bankruptcy exemptions. Additionally, California is exceptional in that a debtor may select between two different sets of state exemptions.
If there are many exemption schemes available, you will pick the one that best safeguards your property. The federal non-bankruptcy exemptions may be used in addition to the state exemptions, but you cannot combine two exemption programmes.
Exemptions in Chapters 7 and 13 of bankruptcy
Chapters 7 and 13 have various rules regarding exemptions. If you file for Chapter 7 bankruptcy, you lose any non-exempt property. The property will be sold for the benefit of your creditors by the bankruptcy trustee overseeing your case. Any property not protected by an exemption under your Chapter 13 repayment plan will be valued and paid to your creditors.
Chapter 7 Bankruptcy: You will be capable of keeping your automobile if you file for Chapter 7 bankruptcy since the exclusions would fully preserve the ownership. The bankruptcy trustee would sell your automobile, pay you $5,000 as an exemption, and then divide the remaining $15,000 among your unsecured creditors in the same scenario, assuming your car was worth $15,000.
Bankruptcy under Chapter 13: You wouldn’t have to make additional payments to your creditors under Chapter 13’s repayment arrangement. However, if the automobile were worth $15,000, you would have to use your plan to pay your creditors at least $10,000 (less sales expenses). Remember that a car loan is not included in these scenarios.
Timing Guidelines and Choosing a Bankruptcy Exemption
The bankruptcy exemptions are far more lenient in certain states than others. However, you cannot just relocate there and start using them. You must reside in the state for at least two years in order to avoid misuse; otherwise, you will apply the exemptions from your previous state. This is how it goes.
You can take advantage of the state’s exemptions if you’ve lived permanently (or “domiciled”) in your present state for at least two years (or the federal exemptions if allowed). The requirements get more difficult if your residence hasn’t been in the same state for two years. So get ready since this will sound odd.
Rules for Special Homestead Exemption
The homestead exemption safeguards your home’s ownership. To find out the specifics, including the amount of equity and land covered, whether the exemption covers mobile houses, and if you need to register a homestead exemption with the county clerk, you’ll need to study your state’s homestead legislation.
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