Upon filing for private bankruptcy, a debtor turns all personal assets over to the trustee of the bankruptcy estate to manage. The trustee's interest is to fairly pay as many creditor claims as possible under the situation. However, the trustee will act to credit this need for money against the debtor's need for housing and the means of producing a living. Federal Bankruptcy Code provides protection for certain private property and assets from lenders. These exemptions recognize the limits that creditors have over certain assets. To be positive, the exemptions are modest, but they act as a backstop for the individual undergoing bankruptcy to retain both basic needs and future means.
When filing for bankruptcy, the debtor will file a schedule of exemptions that will have to meet with court approval. Precisely what exemptions apply will range by situation and by state. Federal Bankruptcy Code establishes the types and levels of allowable exemptions. However, individual states decide if they will follow federal exemptions or develop exemptions of their own. Thirty-five states have developed their own exemptions and, in a further complication, fifteen states allow a debtor to choose whether the bankruptcy is to be considered under state or federal terms. Where federal and state exemptions differ, there might be an advantage in choosing one over the other. Clearly, a debtor will be best served by consulting with an attorney familiar with a particular state's bankruptcy code.
Most exemptions typically come in the form of a value limit for a given asset. For example, a homeowner may be permitted an exemption in a homestead of up to a certain amount. This amount applies to equity in the home. When the equity exceeds the exempted value by a significant amount, the trustee may sell the home as a means of liquidating the difference to apply to other creditors. Where the sale allows for an appreciable amount of cash, the trustee is probably to carry on, giving the debtor only the permitted exemption value. Similarly there are exemption values for automobiles, tools used in trade, and private property. Exemptions that do not provide a value basis apply to life insurance benefits, alimony and child support payments, and public benefits such as unemployment, veteran's benefits, and social security payments. Additionally, most retirement plans are exempt, whether they're pension money or IRA's.
A last exemption category is the "wildcard" exemption. Federal law allows this tiny but meaningful value to be applied to an extended list of assets including money. Under federal law, the wildcard amount increases if the homestead exemption is not used. In some states, the wildcard exemption may be split among several belongings or increased by unused exemption amounts from other classes.
Finally, some states allow all or some exemption levels to be claimed by both spouses in a joint bankruptcy filing. This doubles the allowable exemption values. A typical exception to doubling an exemption is for the homestead exemption. Because private bankruptcy exemptions range markedly by state, consultation with an accomplished attorney is essential.
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By an Act of Congress and the President of the United States, we are a federal Debt Relief Agency. Attorneys and/or law firms promoted through this Web site are also federally designated Debt Relief Agencies. They help people file for relief under the U.S. Bankruptcy Code. Disclosures Required Under the U.S. Bankruptcy Code.
If you live in Alabama, Florida, Missouri, New York or Wyoming, please click here for additional information.
By an Act of Congress and the President of the United States, we are a federal Debt Relief Agency. Attorneys and/or law firms promoted through this Web site are also federally designated Debt Relief Agencies. They help people file for relief under the U.S. Bankruptcy Code. Disclosures Required Under the U.S. Bankruptcy Code.