Bankruptcy Exemptions — The Keys To Protecting Your Assets
Do you want to declare bankruptcy but worry about losing your assets? This is one of the most common concerns many Americans have, and it can keep them from getting the financial protection they need. This is why you need to understand the key means of protecting those assets: bankruptcy exemptions.
What are these exemptions? And how can you use them to secure your most important items? Here's what you should know.
What Are Bankruptcy Exemptions?
Bankruptcy exemptions refer to the lists of which assets are fully or partially exempt from being seized to pay creditors, particularly under Chapter 7 liquidation. Certain categories of assets, such as disability benefits or unemployment assistance, are exempt from seizure in their entirety. However, most assets — including retirement accounts, houses, cars, and jewelry — are exempt only to a certain dollar amount.
What Exemption Choices Do You Have?
Many bankruptcy filers have two choices for using exemptions. The first is to use the list provided by the state in which they file. In California, for instance, you may exempt up to $3,325 in one personal vehicle. However, many states also allow the debtor to use the federal exemption list. Under federal rules, the same vehicle would be exempted up to $2,400.
If you live in a state which lets you choose which list to follow, you may opt for whichever works best for your case. However, states like California may require the use of their exemption rules.
How Much Can You Exempt?
Before choosing how to deploy your exemptions, you should first understand what the exemption actually means. It refers to the equity in each item. If you own a car worth $10,000 but still have an outstanding car loan for $7,500, you actually only have $2,500 in equity, or ownership interest, in the vehicle.
In this case, the car would be fully exempted under California rules. But only $2,400 would be exempt under federal rules. You might be able to cover the remaining $100 through a wildcard exemption. However, if you cannot cover the $100 difference somehow, the vehicle may have to be sold in order to capture the value.
Where Can You Learn More?
Clearly, the more you know about your choices in exemptions and how you can use them to protect what's most important to you, the better you will come out of your bankruptcy. Start by learning more by a consultation with an experienced bankruptcy attorney in your state. Together, you'll maximize your exemptions to minimize your losses.
Contact a firm like Martinez Law Firm.
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