In both Chapter 7 and Chapter 13 bankruptcy , exemptions play an important role because they help protect personal property from creditors. When property is exempt, it means creditors cannot pursue it to satisfy outstanding debt. Each state has its own rules and regulations regarding exemptions with exemptions available on the state and federal level.
Understanding how exemptions will work in your favor depends on the chapter filed. In Chapter 7 bankruptcy, exemptions help determine what property is off limits to creditors. In Chapter 13 bankruptcy, exemptions help determine how much will be paid toward unsecured debt. In some situations, exemptions under Chapter 13 may help create an affordable payment plan.
Depending on the state you live in, you may be able to utilize exemptions at the federal level instead of exemptions offered by your state. Some states have the option of letting debtors choose between state and federal. Reviewing exemptions for both levels will help in determining the best choice. Bankruptcy has an array of exemptions that include different types of personal property.
The following list gives a brief idea of the types of exemptions available:
- Motor vehicle.
- Wages and Income.
- Personal items such as clothing and jewelry.
- Pension and Retirement Plans.
- Homestead exemption (protects home equity).
It also helps to understand what property you possess makes up your bankruptcy estate. This is basically what you have in your possession when you file but it could include community property (if your married but file bankruptcy jointly) or property you don't physically possess but could still be considered part of your bankruptcy estate, such as property you loaned to someone.