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Keeping Your Property: What to Know About Bankruptcy Exemptions

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If a chapter 7 bankruptcy is your near future, you may be worried about losing some of your property. Your home, vehicle, boat, and more could be seized by the bankruptcy court and used to help repay some of the debt being forgiven with your filing. Bankruptcy law does allow you to keep some of your property, however, and the property you may keep depends on the amount and use of exemptions. To help you form a better understanding of bankruptcy exemptions, read on.

State or Federal Exemptions

In some states, you can choose to follow either that state's bankruptcy exemptions or the federal exemptions. If you live in one of these states, you should take care to evaluate your property, its value, and the relative exemptions available for each choice. It should be noted that in no case can you mix state and federal exemptions; you must follow one or the other. In states that don't allow a choice, you will be presented with either state or federal exemption options.

Homestead Exemption

Whether you will be able to keep your home is without a doubt one of the most gut-wrenching questions that bankruptcy filers contemplate. While every state has homestead exemptions available that could help in that regard, the amount of equity you have in your home, and thus its value, is the main deciding factor in whether or not you will end up keeping your home. An exemption is actually a dollar amount that can be deducted from the value of a given piece of property, so the higher your exemption and the lower the value of the property, the more likely you are to keep it. If you are filing jointly with your spouse, you may be entitled to a double homestead exemption. 

For example, joint filers in the state of Alabama can use a homestead exemption of $30,000. If their home is worth $100,000 and they still owe $75,000 on the mortgage, they will keep their home since the exemption brings the property value down to $70,000. Since they owe more than that on the mortgage, their home is safe from bankruptcy seizure. Another important issue to keep in mind when considering exemptions is the total amount of your debt. The bankruptcy court would not seize a home worth $100,000 if you are only declaring $30,000 in debt.

Vehicle Exceptions

The way vehicle exemptions work is very similar to the way homestead exemptions work. If your car has a large loan still outstanding on it, there is very little value in the vehicle itself for bankruptcy-surrendering purposes. The bankruptcy court will take a greater interest in vehicles that are paid off, however. Each state does provide you with a certain dollar-amount exemption for your vehicle.

Personal Property

Generally, your personal jewelry, furniture, clothing, and miscellaneous personal items are exempt. Very valuable jewelry, furs, and fine art are a different story, however. There are usually exemptions for personal property in each state.

On a final note, if you are able to keep property using exemptions, you must remain current on your payments during the bankruptcy process and afterward. For more information, consult with a bankruptcy attorney, such as one from Dunnigan & Messier P.C.


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