The bankruptcy laws are written to provide debtors certain basic exemptions from the assets their creditors may claim. These are called bankruptcy exemptions. An asset that is exempt remains the property of the debtor after the bankruptcy. The exemptions are designed to provide the debtor with the basic possessions and assets necessary to move forward after the bankruptcy.
The exemptions must be claimed by the debtor in the bankruptcy filing and approved by the trustee. There are specific rules and requirements for each exemption to protect the creditors from the debtor fraudulently manipulating the exemptions. Creditors can object to exemptions claimed by the debtor. The burden is on the creditor to prove you do not have a right to an exemption you have claimed.
Bankruptcy exemptions vary depending on the state in which you have lived for the past two years. The Federal Bankruptcy law allows states to either follow the federal exemption law as to the amount and type of exemptions you may claim in a bankruptcy filing or to opt out of the federal exemptions and establish their own exemptions. Thirty-four states have chosen to establish their own bankruptcy exemptions.
These states are Alabama, Arizona, California, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming. In these states you will need to check with your bankruptcy attorney or research your state’s exemption laws to determine the exemptions and their limits.
There are a number of online sites that offer information about exemptions by state.
If you have lived the past two years in one of the sixteen states that allow you to elect the federal exemptions and limits, below is a list of the major federal bankruptcy exemptions:
Homestead – $20,200 (any unused portion of homestead exemption up to $10,125 may be applied to any type of property). The homestead exemption is applied to the equity you have in your residence. Your equity in your home is its fair market value above the amount you still owe on your mortgage.
Life insurance policy – $9,850
Household goods – $9,850 (with a $475 limit per item)
Jewelry – $1,225
Motor Vehicle – $3,225 The motor vehicle exemption is calculated on the value of the vehicle minus what you still owe if the car is financed.
Personal Injury compensation payments – $18,450
Tools of Trade including books and equipment $1,850
Wild card exemption (applies to any type of property) – $925
Exemptions are complicated and you will definitely want to check with a chapter 7 bankruptcy attorney for a complete list of exemptions and their applicability in your unique situation before you make any final decisions.