Bankruptcy Chapter 7 Exemptions

A debtor, who is unable to repay the creditors, may try and resolve the debts by filing bankruptcy under chapter 7 of the U.S. bankruptcy code. As a consequence of filing chapter 7 bankruptcy, the assets of the debtor are liquidated, to help settle the claims of the creditors. The assets, that can be used to discharge the financial obligations of the debtor, are referred to as nonexempt assets. Not all assets can be classified as nonexempt. The U.S. bankruptcy code allows the debtor to protect certain assets, that are exempt under federal bankruptcy law or state law, from being used to discharge the claims of the creditors. There are provisions, in the bankruptcy code, that allow states to adopt their own laws in place of the federal laws, regarding the exemptions. Washington, D.C. and 15 other states allow debtors to choose between federal and state exemptions. The remaining states allow debtors to avail only state exemptions. Hence, the state laws regarding the exemptions, vary greatly.

Federal Bankruptcy Chapter 7 Exemptions
People residing in Washington D.C or in one of the following states may choose to opt for federal bankruptcy chapter 7 exemptions over state exemptions: Arkansas, Connecticut, Hawaii, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont, Washington and Wisconsin.

Retaining Personal Property and Real Estate up to a Specified Dollar Limit: The petitioner/debtor is allowed to retain possession of the following items, up to a specified dollar limit. Personal property including jewelry, vehicles, work tools, household appliances, books, crops, furnishings, household goods, clothing and musical instruments; a fraction of built up home equity, co-ops and mobile home equity and the custody of any burial plot can be retained in lieu of exemptions. Although the list looks comprehensive, the petitioner may be able to retain $17,450 worth of built-up home equity, and a maximum of $8,725 for any unused portion of the house, as a homestead exemption. As far as personal property is concerned, the amount of exemption is around $1,150 for jewelry, $2,775 for motor vehicles and $1,625 for tools. For the remaining personal items, the dollar limit for exemptions is close to $425 per item, with the total not exceeding $9,300.

Income and Insurance: The petitioner is entitled to the full amount of disability insurance and unemployment benefits; the proceeds of life insurance policies that are yet to mature; the full amount of unemployment compensation, veterans benefits, social security benefits, public assistance benefits, crime victims compensation and a portion of personal injury funds. In case of alimony, child support and retirement benefits, one is allowed to retain the amount necessary for sustenance. Generally, people are allowed to retain 75% of their wages, the entire amount of unemployment and welfare benefits, worker's compensation, pension and insurance benefits. In most states, couples married and filing jointly are allowed to double the amount of exemption. However, as mentioned earlier, the rules differ from state to state.

Filing Chapter 13 bankruptcy may be better for wage earners since they may be allowed to retain full possession their assets, provided priority, secured and unsecured debts of the creditors are fully discharged, in accordance with a new set of covenants, within a period of 3 to 5 years.