What if an investment you thought was your ticket to millions causes your downfall? Unable to pay your debts, many people and/or companies file for bankruptcy which offers them a lifeline. Your assets and liabilities are assessed by court trustees and judges to conclude whether your debts could be discharged. However, there are some bankruptcy exemptions too, which are used to determine how much property you can keep.
Bankruptcy Exemptions –What Remains Yours?
When you are not in a position to clear your debts and have filed for bankruptcy, there are certain assets like clothing, an economical car, retirement savings, etc. that are protected during bankruptcy. It is important to consider that iIf you can discharge an asset, you can be assured that the bankruptcy trustee will not be selling it to repay your creditors. Sometimes, the entire value of asset can be exempted. Wildcard Exemptions can be used for any property you have.
When you file for bankruptcy, it doesn’t necessarily mean that you will be losing all of your belongings. Apart from protecting the basic necessities, you can also protect a number of other things too. Here is a concise list of exemptions during bankruptcy filing:
1. Jewellery. Since the purpose of filing for bankruptcy is your inability to clear your dues, you most likely won’t be allowed to keep your luxury branded jewels and watches or an antique collection. However, you can keep jewellery including wedding bands up to a fixed amount.
2. Luxury items. Aside from jewellery, luxury items such as artwork or other collectibles, yachts, airplanes, or vacation homes, you may have to sell them to pay your debt before you are allowed to file for bankruptcy.
3. Pets. If you are a breed collector and own show dogs or racehorses, they may be sold to cover your debts. If, however, you own pets that were rescued from animal shelter, you can keep them.
These exemption options vary from state to state. Before making a decision to file for bankruptcy contact a local licenced attorney for more information about bankruptcy in your state.
How Does Bankruptcy Exemption Work?
There are 2 types of bankruptcy, liquidation bankruptcy and wage earner’s plan. Both of them have a different approach and are for different types of bankruptcy. Here’s a brief overlook of how exemptions work in either case.
Liquidation Bankruptcy or Chapter 7 Bankruptcy
This type of bankruptcy takes care of general unsecured debts such as medical bills, credit card debt etc. without coming up with a repayment plan for paying back the due balance. In this case, your non-exempted assets are sold off by the appointed trustee to clear creditor’s dues. Exempted property (motor vehicle, furniture, professional tools etc.) cannot be sold off in this case
Wage Earner’s Bankruptcy or Chapter 13 Bankruptcy
When individuals with a regular source of income file for bankruptcy, they are often allowed to keep their property and restructure their debts. They can come up with a plan to repay all their debts. The amount needed to pay creditors depends on the amount of property that is exempt. Credit card companies need to receive the amount equivalent to your non-exempted assets. In this type of bankruptcy, with exemptions in place, your payment plans for the creditors are reduced.
Exemptions in State and Federal Bankruptcy
State and federal agencies vary in bankruptcy exemptions. Each state varies in exemption laws; some allow you to choose from either state or federal exemptions while others allow you to use state exemptions only. Domicile requirements (to prove residency for the past 2 years) are important to find out which state’s exemption laws you are qualified to opt for.
Apart from state and federal exemptions for bankruptcy, federal exemptions are also available under non-bankruptcy laws. Though essentially, they work in a similar capacity (protect your property during bankruptcy), they can be combined with state bankruptcy exemptions to provide more exemptions. However, it is important to note that you cannot combine federal bankruptcy and non-bankruptcy exemptions.