Bankruptcy Exemptions: What can your Client Keep?Banker Resource
January 7, 2013 — 1,416 views
Being a lawyer, you may have helped your client file bankruptcy, but it does not mean that the latter has to give away all his property. With the help of exemptions, he can save some of his assets during a bankruptcy.
Every state has its own exemptions for bankruptcy, and if you are the one who’s filed bankruptcy, you will need to use the exemptions that applies to the state that you live in. There are a number of states that let you choose between exemptions made by the Congress and the states’ laws.
If you have the option of exemptions, you are required to choose one of the two – either state or federal, and cannot use both. On choosing the exemption system put forth by your state, you can also make use of some exemptions that are prescribed by the federal law.
Federal Exemptions in Bankruptcy
This type of exemption is present under the code of federal bankruptcy, making their amounts consistent from one state to the next. With these exemptions, you are allowed to save a specific amount of equity from your entire assets.
One of the most popularly used federal exemptions is known as the homestead exemption, which is used for your home equity. The wildcard exemption and the automobile exemption are other types of exemptions that are used to protect any kind of property. The amounts that are permitted under federal bankruptcy are reviewed every three years so that the alterations in Consumer Price Index are reflected. The last time these exemptions were adjusted was back in 2010.
There are numerous other special exemptions that have been designed specifically for other types of assets like retirement accounts and jewelry.
Aside from federal bankruptcy exemptions, there are a set of exemptions of the state too. Largely, these exemptions are pretty similar to that of the federal government but the amounts that are exempted vary from one state to the next.
How Bankruptcy Exemptions Operate
In case the property you own is worth an amount, which is less than or equal to the exemption amount that your state provides, you will be allowed to keep the property. You should consider that your trustee will also have some costs when they sell your property. If your equity in that property is not considerably more than the exemption, the trustee probably won’t sell the property.
If you have lived in a state for over two years, then the bankruptcy exemptions of that state apply to you. On the other hand, if you haven’t lived in the same state for more than two years, the issue gets a little complicated.
This exemption applies to real property or your home. The precise definition will depend on your state. If you acquired your house in the state that you presently live within 40 months before filing for bankruptcy, the homestead exemption will be $146,450. This cap is not applicable if you purchased your house using the proceeds from selling another house in the particular state.