People who think about filing for bankruptcy may be in serious financial trouble and are not taking the decision lightly. Many people fear the worst about Chapter 7 bankruptcy. They are worried about what will happen to their homes, cars, and other property if they file for relief.
Many filers are fortunate to have bankruptcy exemptions that take this into account. Although Chapter 7 bankruptcy is meant to give filers a fresh start in terms of their debts, it does not mean that they will have to start over with their property. This is why bankruptcy laws allow individuals to retain certain property through “exemptions”.
There are many types of Chapter 7 bankruptcy exemptions available
Chapter 7 bankruptcy is also known as “liquidation bankruptcy”. This is because it involves assembling the assets or property of the filer and selling them to pay off the most debt before the remainder of the debt is “discharged” (or eliminated). However, bankruptcy law does not allow certain types of property to be sold to pay for these debts.
These protections are known as exemptions. Sometimes exemptions protect whole types of property. Other times exemptions may limit the value they can protect, such as a home. Tax filings can also affect exemptions.
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Filers need to be aware that the bankruptcy exemptions available to them will depend on their state laws and sometimes federal law. Each state may have its own exemptions, which can either be combined with or replaced by federal exemptions. Filers should consult a local bankruptcy attorney to learn about the exemptions that are available to them to maximize their property.
Here are some common bankruptcy exemptions that might be available in Chapter 7 filings. We also provide brief descriptions of their operation.
Exemptions for Homesteads
It shouldn’t surprise that Chapter 7 filers are most concerned about their home. People want to avoid foreclosure as much as possible. Homestead exemptions are available that can protect the home of a homeowner. However, homestead exemptions have a limit on the amount that can be protected.
The federal exemption for homesteads is, for example, limited to $20,000. There are many state homestead exemptions that offer greater protection against creditors than others.
Car or vehicle exclusions
The protection of a person’s vehicle from Chapter 7 creditors or the sale of assets may also apply. However, state and federal laws usually place a limit on the vehicle’s worth that will be protected. The amount of protection available varies from no exemption to full car value.
Personal Property Exemptions
There are many exemptions that can be applied to different types and types of personal property. Good news is that bankruptcy estates are exempted from many types of personal property. Clothing, jewelry, home furnishings and appliances are just a few examples. These exemptions may also be subject to per-item limits and total limits.