Exemptions For Bankruptcy: What Every Debtor Needs To Know
Exemptions are a crucial part of bankruptcy, whether you file under chapter 7, chapter 13, or a lesser used chapter. The exemptions that are allowed under the bankruptcy law allow you to protect certain types and amounts of your personal property from any creditors that you owe. Any property that is covered by the exemptions that have been chosen in your case can not be touched by your creditors in any way in an attempt to collect on the debt that you owe.
Exemptions are provided at the federal level, and in addition each individual state will also have certain exemptions that can be used in a bankruptcy case. The exemptions that can be used may be different from one state to the next. In some states you can make a choice between the federal exemptions or the available state exemptions. Some states only allow state or federal exemptions but do not offer a choice to the debtor on which exemption scheme to use.
The role of the exemptions will depend on which chapter you file for bankruptcy under. Chapter 7 uses the exemptions listed to evaluate the types and amount of property that can not be seized and sold by the bankruptcy trustee to pay off creditors in your case. Often chapter 7 cases do not have any property that is not covered by the exemptions allowed, and all allowable debts are discharged.
With a chapter 13 case the exemptions that you choose will be used to calculate how much you will be required to pay towards each unsecured debt that you owe. This chapter of the bankruptcy code allows you to reorganize your debt and submit a repayment plan that covers 3-5 years. When you use the exemptions that are allowed this lowers the amount that you must repay towards the debt owed. Before choosing the right type of exemptions you should consult with an experienced bankruptcy lawyer to ensure that you get maximum property coverage for your specific assets and case.
There are many types of property and types of exemptions under the current bankruptcy laws. Exemptions should cover at least 1 motor vehicle, and in joint cases 2 vehicles may be covered instead depending on the state and the exact circumstances. Exemptions will also usually cover at least part of your income and the wages that you earn. Most retirement plans, pensions, and life insurance policies are usually exempt in bankruptcy, and there are amounts allowed in the exemption schedule for clothing, household items, and jewelry.
The homestead exemption is in place to help protect a certain amount of home equity that you have in your primary residence. In addition most states allow a wild card exemption, and this is a specific dollar amount that can be applied to any property or assets that the debtor chooses. In order to choose the right exemptions you will need to understand what property and assets make up the bankruptcy estate, so that the chosen exemptions can be applied in the best possible way.