Bankruptcy Exemptions – Find Out Which Assets Are Exempt In Bankruptcy

All the assets, including property, that cannot be sold or seized to clear the debts of a debtor who has filed for bankruptcy forms the part of bankruptcy exemption.


The following come under the federal bankruptcy exemptions:

1. Property: Mobile homes, real property, co-ops, and even burial plots can be exempted. You can also use any unused homestead portion as property.

2. Tools: Books, trade-related tools and implements.

3. Pensions: Retirement accounts and IRAs.

4. Public benefits: Unemployment and crime victim’s compensation, social security, public assistance and veteran’s benefits.

5. Child support and alimony.

6. Personal property: Cars, household items, furnishing, appliances, musical instrumentals, crops, animals etc, jewelry, payments on lost earnings.

7. Insurance: Life insurance policy which is not matured till the time of filing for bankruptcy, disability or illness or unemployment benefits, payments for life insurance of a dependent.

The government has put up a cap on all these items which any lawyer dealing with bankruptcy cases would tell you. Apart from federal bankruptcy exemption details, all the different states also have different exemption criteria. The federal government has given many states the right to choose what kind of exemption laws to impose on a particular debtor which means that the state can offer the choice to the debtor to select between the federal exemptions and the state exemptions as it sees fit regarding a specific case. But, the debtor can only opt for one statute. The debtor can’t opt for federal exemption in some cases and state statute for some other.

However, there are certain states which do not allow its citizens to opt for exemptions as defined by the federal statute but they have their own exemption criteria that the citizens have to follow. As every state has different procedures related to bankruptcy exemptions and one wrong move can lead to loss of property and assets, it is advisable to consult a lawyer before filing.

Many states also offer the option of a wildcard which you can use to exempt those assets also that are not included in the exemption lists of the states. This advantage also varies from one state to another.

At the time of filing for bankruptcy, whatever property you have forms the part of the bankruptcy estate. It is determined by the federal government what should be included in your estate and this bankruptcy estate can be seized and sold off to pay your debts. That’s when bankruptcy exemptions come into the picture. All your personal assets such as your car, house, household items and furniture, clothing, tools, jewelry and insurance could be listed under personal bankruptcy exemptions. However, there is an upper limit attached and you can only declare items till that value. But, declaring them as exempt doesn’t mean that you are exempted from paying off your debts. You would still need to pay income tax debts, alimony, child support and school loans, if any.

Equity of your property and car is used for determining your bankruptcy exemptions. Equity of your car or your house is the market value of the said car or the house minus any loans against it. The government has set a maximum limit to the equity on the car and anything under it can be declared as bankruptcy car exemption.

The equity amount on the property of your residence which can be protected under chapter 7 bankruptcy is known as bankruptcy homestead exemption. These laws also differ in different states. While some states take into consideration the size of the lot, others consider only equity and some others consider both, lot and equity. The federal government has decided an upper limit for bankruptcy homestead exemption.

You can use bankruptcy exemptions to protect those assets such as your house and car. When you declare any item as exempt, all the other items are liquidated and used to pay off your debts. However, to stop misuse of this statute, the federal government has fixed a limit of sorts or a maximum value up till which you can declare your asset as exempt.

Leave a Comment

Your email address will not be published. Required fields are marked *