If you’re in a position where you have to declare bankruptcy, it can be stressful. The process is long and tedious, and in some cases, you face parting ways with your assets. Bankruptcy exemption may be a way for you and your family to prevail against bankruptcy and keep more of your assets. By understanding what this is, you can make the best decisions for your family and finances.

What Is Bankruptcy Exemption?

Bankruptcy exemptions are laws that protect some of your assets from creditors in the case of bankruptcy or liquidation. These regulations are in the Bankruptcy Code, state, and federal laws.

The goal of bankruptcy exemption is to assist you with your new financial situation. Bankruptcy is supposed to be a fresh start, and these laws will help you and your family by not stripping you of all your assets. This way, you can focus on moving forward and living a financially stable life.

Chapter 7 Bankruptcy Exemptions

Chapter 7 refers exclusively to liquidation bankruptcy. In this scenario, after declaring bankruptcy, a trustee is appointed to your case to sell your assets in order to pay back your creditor.

If you successfully file for bankruptcy exemptions under chapter 7, your assets may be protected from liquidation. For example, if you are approved for a $5,000 motor vehicle exemption and have a car worth $4,000, the trustee will not be able to sell the vehicle to pay back the creditor.

Chapter 13 Bankruptcy Exemptions

Chapter 13 bankruptcy sets up a payment plan between you and your creditors. In this case, most assets are already exempt. But, if the trustee does try to liquidate any assets, you are able to file for bankruptcy exemption to cover all property not already exempt.

What Is Exempt?

In many cases, the assets that will be exempt from bankruptcy are those that you need to survive and work. For example, if you need a car to drive your kids to school and then commute to work, then this might be exempt. If you have no other place to live and cannot afford rent, then your home may be kept in your name as well. Computers and necessary medical supplies may also fall under this list.

Overall, each case is different from what is and is not exempt. The court will take each individual scenario into consideration to ensure that the best decision is made for you and the creditor.

A full list of what may be exempt in bankruptcy cases can be found here.

Who Can File For Exemption?

If you are interested in filing for a bankruptcy exemption, you will have to choose to file under federal or state laws. Each has a specific list of requirements that you must meet in order to gain exemptions. Each set of laws also defines what might be exempt from creditors.

If you choose to file with your state, you have to have been a resident for the past two years. Each state has different requirements for eligibility. An in-depth list of regulations per state can be found here.

How To File

If you think that filing for bankruptcy exemption is the best decision for you and your family, the next step is to fill out the forms. To file for this, you will need a Schedule C Form. This form will ask you to fill out some personal information along with what properties you are requesting be exempt.

Make sure that you include reasonable requests and have proof that you need the assets you are hoping to keep after bankruptcy. It is suggested that you seek legal counsel to assist you with this process. If you have a professional to advise you, you will have a better chance of keeping more of your assets. Use this tool to find an attorney near you.

Conclusion

There is no better feeling than getting to keep your valuable assets in the case of bankruptcy. However, it is only possible if you successfully file for bankruptcy exemption. Be sure to complete thorough research to ensure you make the best decision for your future.