What are Bankruptcy Exemption Laws?
Exemptions Laws
What are Bankruptcy Exemption Laws?
In bankruptcy, property can be divided into two piles: exempt and non-exempt. Exempt property is protected from creditors and the bankruptcy trustee. Non-exempt property is subject to sale or attachment.
Considering filing for bankruptcy but worried about losing your property? Conceptually, it is quite important to understand the basics of how exemption laws work if you’re considering filing for bankruptcy or facing a collection lawsuit from a creditor.
Each state, as well as the federal government, has enacted exemption exemption laws that dictate what types of property you can keep no matter how much money you owe. If you are considering filing for bankruptcy, your property will be divided into two piles: exempt and non-exempt. Your non-exempt assets are subject to sale by the bankruptcy trustee. Your exempt property is shielded from the trustee.
For example, let’s say you decide to file for bankruptcy in Missouri. Missouri bankruptcy laws allow $15,000 of equity in a home and $3,000 of equity in a car to be classified as exempt. In the event that your home and car are below the exemption limits set by Missouri bankruptcy laws, you can keep the property and file for bankruptcy no questions asked. Exemption laws operate as your shield against creditors. You see, the goal of a creditor lawsuit or collection action of any kind is to get their hands on your property. Similarly, in the context of a chapter 7 bankruptcy case, it is the trustee’s job to liquidate your non-exempt property to satisfy the claims of creditors. However, creditors or the bankruptcy trustee can only come after your non-exempt property, if all of your property is exempt, you are essentially judgment proof.
RECENTLY MOVED? A recent move may impact which state’s exemption laws apply to your bankruptcy.
On top of what is strictly exempt under the law one should also keep in mind that a debtor will be allowed to keep certain additional property, simply because it is not worth the creditor’s time to try to turn certain assets into cash.
One example is household furniture. Even if your personal property value exceeds the exemption, it would be highly unlikely a trustee would be interested in holding a yard sale to sell your furniture for the benefit of your creditors.