This inquiry originates from confusion regarding bankruptcy. Chapter 7 and Chapter 13 are the two forms of personal bankruptcy.
Chapter 7 bankruptcies are known as liquidations. In Chapter 7, a trustee will dispose the non-exempt, non-exempt property of the debtor. The received funds are then distributed to the debtor's creditors.
Because the purpose of bankruptcy is to give individuals a fresh start, it would not make sense to allow a trustee to sell all of a debtor's property. In addition, individuals require essential items such as clothing, furniture, household items, automobiles, and tools for their trade, among others. The manner in which the bankruptcy laws were designed to allow people to keep certain property was by allowing them to """"exempt"""" certain property from the bankruptcy. The inability of trustees to sell """"exempt"""" property means that """"exempt"""" property remains the debtor's property.
As an aside, federal law establishes property exemptions and permits states to establish their own. Numerous states have utilized the opportunity to establish exemptions. In most instances, therefore, the bankruptcy property exemptions are governed by state law and not federal law.
Chapter 13 bankruptcy differs from Chapter 7 bankruptcy. Individual Debt Adjustment is the name of Chapter 13 of the Bankruptcy Code. This is essentially a court-ordered debt payment plan. In Chapter 13, the debtor makes monthly payments to the trustee, who then distributes the funds according to the debtor's payment plan.
In Chapter 13, unlike Chapter 7, the trustee does not seize and sell any assets. Because the trustee does not remove or sell property, the debtor does not need to exempt any assets from a Chapter 13 bankruptcy. Therefore, exemptions are not permitted in Chapter 13 bankruptcy.
This is commonplace knowledge. Consult an attorney licensed in your state if you require specific information or have any queries of any kind.
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