Chapter 7 Bankruptcy Exemptions

The bankruptcy law of the United States is found in the title 11 of the United States Code. This title is also known as bankruptcy code of the United States. All Federal laws that relate to bankruptcy procedures are found in this code. The code is divided into chapters that set aside provisions for different types of bankruptcy.

Understanding Chapter 7 Bankruptcy

The evolution of the term Chapter 7 bankruptcy lies in the title 11, bankruptcy code. This chapter of bankruptcy is the most common chapter of filing and is also pretty easy to understand.

A person who is caught neck-deep in debt can voluntarily approach the bankruptcy court and file for a state of bankruptcy. After the application is accepted (in some cases after a means test), the court appoints a liquidator, who in some cases is also known as a trustee, to manage the assets of the person. The liquidator then freezes the assets and accounts of the person, and begins to calculate the fair amount of debt that the person actually owes to the creditors. The assets are then liquidated, sold off, and the creditors are paid off in a particular fashion of pro-rata calculations, the secured ones being paid off the first , followed by the unsecured ones and then the credit cards. The assets that are exempted are not liquidated and no creditor can make claims of pending payment. After this procedure the creditors cannot claim any amount and this stage is known as a Chapter 7 bankruptcy discharge.

In case of bankruptcy 7, the Federal government has made provisions regarding the implementation of the individual bankruptcy law. United States being a Federal nation, the states have their own laws regarding Chapter 7 bankruptcy. The state bankruptcy laws are modeled on the basis of Title 11. The Chapter 7 bankruptcy exemptions also differ in accordance. There are 16 states that permit the citizens to adopt any of the exemptions, either the ones that are in the Federal laws or the ones that are in the state laws. These states consist of, Arkansas, Connecticut, Hawaii, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont, Washington and Wisconsin.

Exemptions in Chapter 7 Bankruptcy

It must be noted that exemptions and qualifications under Chapter 7 bankruptcy differ from state to state, but the following are some of the most common ones that are opted for.

The petitioner (person filing the bankruptcy) can retain a specified basic number of necessities. These include, jewelry, vehicles, work tools, household appliances, books, crops, furnishings, household goods, clothing and musical instruments. Apart from that, the petitioners can also retain some real estate and a motor vehicle, though a specific limit on equity or value would be imposed. The person can retain $17,450 built-up home equity and $8,725 worth unused portion of the place of residence. Other than the real estate, some other Chapter 7 bankruptcy property exemptions are also granted. This includes jewelry with a limit of $1,150, motor vehicle/s worth $2,775, and $1,625 worth of tools. As per Chapter 7 bankruptcy rules, items that can be included, have a limit of $9,300 on the worth value.

The second very important set of assets that is exempted by the court includes, the insurance and other financials of the petitioners. According to the Chapter 7 bankruptcy, federal exemptions, the creditors cannot have any claim regarding the disability, medical and unemployment insurances of the petitioner. The proceeds of life insurances also cannot be claimed. Other such financials include, veteran benefits, social security, compensations of unemployment and other related compensations. The compensations such as crime victims compensation, personal injury payments and assistance benefits are exempted. For welfare and alimony and child support, is curbed down. Among all the exemptions, the most common and the last one that is particularly important, is the wages out of which 75% are allowed to be retained.

Please make sure that you consult a bankruptcy lawyer for the entire process as the bankruptcy law and code significantly differs from state to state.