Bankruptcy exemptions are assets such as your home and car which you can keep. In other words, if you fear your home will be taken if you file personal bankruptcy, you would want to claim it as an exemption so you can keep it. The most important assets for most individuals and families are the home and cars. This guide shows you what laws are involved and offers helpful tips on saving major assets.
Claiming Exemptions in Bankruptcy
For personal bankruptcy, exemptions would be under Chapter 7. This is a liquidation hearing where some of your assets are sold by a trustee, who's job is to pay back your debtors.
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In the petition you file with the court, you include what assets you feel should be exempt. If you wanted to save your home, for instance, it would include the current value, what you owe, and your income bracket. In this bankruptcy petition--which an attorney can help you with--you want to list exempt assets to be approved by the courts. It's one of the first steps you take.
What is Exempt Property?
If your property is exempt you can keep it. If not, if it's considered nonexempt, it can be law be sold by the trustee in the Chapter 7 case. This depends on many factors, depending mainly on state law. This is where the laws can get complex. The recent "Bankruptcy Code" instituted as an opt-in under federal law tried to make exemption uniform, but many states decided not to opt-in. Therefore, most states are different.
In Chapter 7 cases, your best bet is hiring a good attorney to help you decide if indeed this is the right form for you or if Chapter 13 would be better. But let's go over that more.
Is Your Home Exempt?
The current federal homestead exemption changes, and state laws vary. However, current law limits your homestead exemption to $136,875 in a certain time period before bankruptcy. You can't just buy an expensive property and then claim it as exempt in 2 years. There are laws regarding that.
What you want to know is your current home equity and whether you use Chapter 7 and Chapter 13. If your equity is not exempt, your home could be sold in a Chapter 7 case. In some instances, especially if you're employed, Chapter 13 could save your home.
What About Your Car?
The current Bankruptcy Code allows for an exemption of $3,225 for a car. The equity is defined as the car's market value minus loans against it. In some cases, you can actually pay the trustee so you can keep the vehicle. You have many options and working with an attorney can clear up these details.
What's the Best Option?
You may be wondering what personal bankruptcy form is right for you. In the case of Chapter 13, the biggest benefit is you can keep everything but you must pay back your debts. In the case of Chapter 7, you discharge the majority of your debts but there is a distinct possibility you'll lose assets such as your home and car. If you are currently employed and making a high monthly income, you may only be eligible for Chapter 13 under new Federal Code.
Asking for Help
Knowing exemptions is in and of itself a science, and an experienced bankruptcy attorney can help you navigate these waters. Just as you would want a professional doctor to operate on you for a medical condition, you should let someone with experience handle your filings.
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