Exemptions: An essential part of the bankruptcy code

On Behalf of | Mar 20, 2020 | Firm News |

Bankruptcy is sometimes a tough pill to swallow. You have worked hard to get where you are, and the fact that you had something unexpected happen in your life could ruin it all.

Fortunately, bankruptcy isn’t going to ruin you. In fact, bankruptcy is designed to help you overcome your debts and find better financial footing, so you can have a more balanced life without the fear of repossessions, foreclosure or other issues.

When you think about bankruptcy, the first thing that probably comes to mind is the old myth that you’ll lose everything. Yes, with Chapter 7 bankruptcy, there is a potential that you will need to liquidate some of your assets. However, there are also amazing exemptions that help you keep many of the assets you have today while helping you discharge debts that are overwhelming you.

How do you know if your property is exempted from bankruptcy liquidation?

There is no simple way except to know the state laws. Exemptions vary by state. The bankruptcy code will determine which property creditors can or cannot try to take to get paid.

For example, most people will be able to exempt items like necessary clothing, a primary vehicle under a certain value or assets that they need for work, like a primary computer or camera supplies.

Some commonly exempt assets include:

  • Jewelry, up to a certain value
  • Pensions
  • Tools that are a necessary part of your trade
  • Public benefits, even when accumulated in a bank account
  • Damages for personal injuries
  • Necessary household items and furnishings
  • Reasonable clothing
  • Vehicles up to a predetermined value
  • A portion of the equity in your home
  • A portion of unpaid wages

What kind of property isn’t exempt?

There are several kinds of property that are not usually exempt in bankruptcy including:

  • Expensive musical instruments (with the exception that musicians who work professionally in the field can have this waived)
  • Family heirlooms
  • Second vehicles
  • Second homes
  • Collector’s items like coins, stamps or other kinds of valuable items

These are a few things that you should know about bankruptcy. Bankruptcy shouldn’t make you feel bad. It’s a legal method of reducing debt and helping you get back on your feet. Thousands of people use it to help corect their financial situations, and it’s fair if you want to use it, too. Your attorney can talk to you about using bankruptcy as well as other possible methods of debt relief.

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