Bankruptcy Exemptions
Bankruptcy exemptions play a big role in both Chapter 7 and Chapter 13 bankruptcy. In Chapter 7 bankruptcy, exemptions help determine how much of your property you get to keep. In Chapter 13 bankruptcy, exemptions help keep your plan payments low. Read on to learn more about bankruptcy exemptions and how they work.
Filing bankruptcy does not mean that you have to give up all of your property. Through exemptions, you can keep a certain amount of your assets safe in bankruptcy. Many exemptions protect specific types of property, such as a motor vehicle or your wedding ring. Sometimes an exemption protects the entire value of the asset. Other times, an exemption protects up to a certain dollar amount of an asset. Some exemptions, called "wildcard exemptions," can be applied towards any property you own. If you can exempt an asset, then you don’t have to worry about it being taken or affecting your bankruptcy.
A Chapter 7 is a liquidation bankruptcy where the appointed trustee is looking to sell off your assets to pay your creditors. However, the bankruptcy trustee cannot sell any property you are able to exempt. This is how bankruptcy exemptions help you to protect your assets in a Chapter 7 bankruptcy. For example, if your state has a $5,000 motor vehicle exemption and you only have one car worth $4,000, then you can keep it.
A Chapter 13 bankruptcy allows you to keep all your property and reorganize your debts. However, the amount you must pay certain creditors still depends on how much property you can exempt. The value of any nonexempt assets must be paid to your nonpriority unsecured creditors (such as credit card issuers) in your bankruptcy. So in a Chapter 13, exemptions help keep your plan payments low by reducing the amount you are required to pay creditors.
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