Bankruptcy Exemptions: What They Are and How They Work

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Bankruptcy exemptions are key players in both Chapter 7 and Chapter 13 bankruptcy even though, in each situation bankruptcy exemptions are used for different reasons. For example, Chapter 7 bankruptcy exemptions are put into place to decide how much property you are able to keep during the process, while Chapter 13 exemptions assist in lowering the cost of payment plans.

This article discusses what bankruptcy exemptions are and how they work for both Chapter 7 and Chapter 13 bankruptcy.

What Are Bankruptcy Exemptions?bankruptcy exemption

When you file Chapter 7 or Chapter 13 bankruptcy you are allowed to keep exempt property you own such as your home, car, certain personal belongings, pension, etc. All property that is deemed “non-exempt” the trustee is authorized to sell this property in an attempt to absolve any remaining debt.

When you file for bankruptcy in the United States, your exemptions are determined by the state in which you take up residency in. Each state exemption system is different and only 17 states allow you to choose between the state or federal exemption system, Florida is not one of them. As stated by National Bankruptcy Forum, the top five Florida bankruptcy exemptions are:

  • Homestead – Unlimited (when meeting length of ownership requirement), but property must be no larger than half an acre in a municipality or 160 acres elsewhere
  • Personal property – Up to $1,000, including furniture, art, and electronics; can claim up to $4,000 if not using homestead exemption
  • Vehicle – Up to $1,000; more if married and filing jointly
  • Wages – Head of family fully exempt up to $750 per week, paid and unpaid during the last 6 months
  • Pension/retirement – 401(k)’s exempt; IRA’s and Roth IRA’s exempt up to $1,171,650

If you plan on hiring a Fort Myers bankruptcy attorney to handle your case, he or she will be able to assist you in determining what additional exemptions are available to you.

How Bankruptcy Exemptions Work

Bankruptcy exemptions are designed to assist you during your bankruptcy journey, no one wants to see all of the property you’ve worked so hard for over the years slip through your fingers. Additionally, neither the state nor the federal government wants to leave you with nothing once the process is over. Bankruptcy exemptions in both Chapter 7 and Chapter 13 have their individual benefits to help you get out of debt faster.

  • In Chapter 7 bankruptcy, exemptions allow you keep certain assets you own as set by the bankruptcy exemption system of your state and can not be sold by a trustee. Property that is considered a non exempt asset will be sold in order to pay your creditors and any outstanding debts you have accrued over the years.
  • In Chapter 13 bankruptcy, you are allowed to keep all of your property, in addition to reorganizing your debts. Exemptions can help to keep payments low by reducing the amount of money required to pay to creditors.The amount you are required to pay creditors will depend on how much property you can claim as exempt.

If you’re considering filing Chapter 7 or 13 bankruptcy it’s in your best interest to discuss your exemption options with a qualifted Fort Myers bankruptcy attorney. At Miller, Hollander & Jeda we can offer you experienced legal counsel for all of your bankruptcy questions. Contact us today, for a free consultation.