The debtor's nonexempt property is sold and the net proceeds are distributed to the debtor's creditors in Chapter 7 bankruptcy, which is also known as the liquidation bankruptcy. The greater the amount of exempt property, the more property a debtor can retain after filing for bankruptcy.
While bankruptcy is governed by federal law and cases are lodged in the federal district court for the debtor's home district, state laws have a significant impact on bankruptcy. As part of federal law, states have the authority to determine which assets are exempt from a Chapter 7 bankruptcy. Consequently, Chapter 7 exemptions differ from state to state. This is why you may have heard that many affluent celebrities move to Florida and then declare bankruptcy. Florida's exemptions appear to be more generous than those of other states.
The majority of jurisdictions exempt at least some of the following:
- Items for the home, including furniture, kitchen appliances and utensils, electronics, etc.
- Personal property and belongings including garments, jewelry, etc.
- Medical aids.
- The instruments of one's profession.
Automobiles and other vehicles.
- Homes serving as the principal residence of the debtor.
- Pensions.
Generally, dollar amounts are used to determine whether a portion of property is exempt from taxation. For instance, a state law may specify that $2,000 of a car's value is exempt and that the exemption applies to a person's property equity. If there is a loan on the vehicle, the exempt amount is applied to the debtor's equity in the vehicle. In our example, if the car's value is $5,000 and the loan balance is $3,000, the equity is $2,000. If the exemption is $2,000, then the vehicle is exempt from bankruptcy ($2,000 equity minus $2,000 exemption) as long as the debtor pays off the car loan.
To determine precisely which properties are exempt, you must consult the laws of your state. The accuracy of information found on the Internet cannot be guaranteed. The best method to determine which property is exempt is to speak with an attorney.
This is general information only. Consult an attorney licensed in your state if you require specific information or have any queries of any kind.
This article may be republished with no changes to the language or author connections.
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