While Filing For Bankruptcy Which Items Are Protected Through Exemptions?

  • Bankruptcy Exemptions

While Filing For Bankruptcy Which Items Are Protected Through Exemptions?

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Exemptions form an important part of the bankruptcy proceedings as you can protect your property (home, car, pension, personal property, etc.) using them. Any non-exempt property you have can be taken by the trustee and sold to pay your unsecured creditors in chapter 7 bankruptcy. in case of chapter 13, you can even keep your non-exempt property if you pay your creditors an amount equal to the value of the non-exempt property. Before filing for bankruptcy, it is important to find out about the state exemptions, according to Dallas based law firm.

Which bankruptcy exemption should you choose?

Every state has its set of bankruptcy exemptions apart from federal bankruptcy exemptions. Only seventeen states allow debtors to choose between state and federal exemptions while others insist on using state exemptions. You are not allowed to mix and match between these two exemption systems. Though if you choose state exemptions you are provided additional exemptions through federal non-bankruptcy exemptions which cannot be used along with federal bankruptcy exemptions. Before choosing any option, it is important to find out the exemption amount for various properties provided by state and federal government.

Working of bankruptcy exemptions

If you own a property, the equity in which is equal to or less than the exempted amount, then you can keep the property in chapter 7 and in case of chapter 13 you do not have to pay anything extra to keep it. Here is what happens in different bankruptcy chapters:

  • In chapter 7 bankruptcy, the exemption can protect the equity if it is less in amount. If vehicle exemption is $5,000 and your car is worth $3,000, you can keep it; but if it is worth $15,000, the trustee will sell it and pay you the exempted amount while using the remaining money to pay your unsecured creditors.
  • In case of chapter 13, if the vehicle equity is more than the exempted amount, you might have to pay your unsecured creditors that amount through your repayment plan. If it is less, you can keep the vehicle without paying anything extra.

Selling the property costs money. If the equity in property does not cover the exemption, the loans secured by property and the cost of sale, then the trustee might not sell it. this is because there will not be any money left to pay the creditors after the entire procedure.

State exemptions

The state exemption available to you depends on where you have lived for the past two years. If you have lived in your current state for two years you can use that state’s exemptions. In case you have not resided there for two years, the rules are slightly complicated. Homestead exemption can be used to protect your home or any other property which is used as primary residence. As per the domicile rules for homestead exemption, you need to have acquired the property (where you reside) 40 months prior to bankruptcy filing, else the exemption is capped at $170,350.

While filing for chapter 7 bankruptcy, it is important to make a list of properties and their replacement value to compare it with the exemptions provided by the state (or federal government, if your state allows you to choose between the two). You can call (888-297-6203) to discuss it with experienced bankruptcy lawyers.