What Property is Exempt in a Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a legal process that helps individuals discharge their debts and obtain a fresh financial start. However, filing for bankruptcy can be a complicated and stressful process, and it’s important to understand what property is exempt in Chapter 7 bankruptcy to ensure you don’t lose any valuable assets. In this article, we will discuss what property is exempt in a Chapter 7 bankruptcy and how it can impact your bankruptcy case.
Summary: The property that is exempt in a chapter 7 bankruptcy include: the home, a motor vehicle, some personal property, jewelry, tools of the trade, unmatured life insurance policies, health aids, certain income, crime victim’s reparation law awards, wrongful death payments, life insurance payments, personal injury payments, compensation for loss of future earnings, and certain retirement funds.
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” is a legal process where a debtor’s non-exempt assets are sold to repay creditors. Any remaining debts are then discharged, meaning the debtor is no longer responsible for paying them. Chapter 7 bankruptcy is often the quickest and simplest form of bankruptcy, but not everyone is eligible to file for it.
Read: Who Qualifies for Chapter 7 Bankruptcy: Breaking Free from Debt
Exemptions in Chapter 7 Bankruptcy
Exemptions in bankruptcy refer to the property that is protected from being sold to repay creditors. In other words, exempt property is safe from the liquidation process. Each state has its own set of exemptions, and some states allow debtors to choose between the state exemptions and the federal exemptions. This article discusses the federal bankruptcy exemptions.
Please note that the following dollar amounts are changed typically every three years and were last adjusted on April 1, 2022. The new amounts are published in the Federal Register.
1. Homestead Exemption
The homestead exemption allows you to exempt a total of up to $ 27,900 in either your home, a cooperative that owns property that you or a dependent use as a residence, or in a burial plot for you or a dependent. In some states, there’s no limit to the homestead exemption, which means that your home cannot be sold to pay back the money you owe to creditors.
2. Motor Vehicle Exemption
You may exempt your interest, up to $4,450 in value, in one motor vehicle.
3. Personal Property Exemption
The personal property exemption allows you to exempt your interest, up to $700 in value for any particular item, or up to $ 14,875 in total. These items include things like furniture, clothing, appliances, books, pets, and musical instruments that you and your family use.
4. Jewelry Exemption
You can keep your jewelry that is worth up to $1,875. This includes jewelry that you or your family use for personal, family, or household reasons.
5. Wildcard Exemption
The wildcard exemption allows you to exempt any property, up to $ 1,475 in value, plus any unused amount of the exemption provided under the homestead exemption, up to $ 13,950.
6. Tools of the Trade Exemption
If you work in a particular profession, you can keep your work tools and equipment when filing for bankruptcy. You can keep items that are worth up to $2,800 in total. This includes things like tools, books, or any other equipment that you or your dependent use for work.
7. Life Insurance Exemption
You may also exempt any unmatured life insurance contract, i.e. an active insurance policy, that you own, other than a credit life insurance contract.
8. Life Insurance Dividend Exemption
Another life insurance exemption allows you to keep up to $14,875 in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by you under which the insured is you or an individual of whom you are a dependent.
9. Health Aids Exemption
You may exempt professionally prescribed health aids for yourself or a dependent.
10. Income Exemptions
The income exemption allows you to exempt your right to receive certain types of income, including:
I. Social Security, Unemployment, and Public Assistance Benefits
II. Veterans’ Benefits
III. Disability, Illness, or Unemployment Benefits
IV. Alimony, support, or separate maintenance payments, to the extent reasonably necessary for your support and the support of any dependents.
V. Pension and Retirement Plan Payments:
You may exempt your right to receive payments under a stock bonus, pension, profit-sharing, annuity, or similar plan in the event of illness, disability, death, age, or length of service, to the extent reasonably necessary for your support and the support of any dependents, unless:
(i) the plan was established by an insider that employed you at the time your rights under such plan arose;
(ii) the payment is on account of age or length of service; and
(iii) the plan or contract does not qualify under certain sections of the Internal Revenue Code.
11. Crime Victim’s Reparation Law Award Exemption
You may exempt your right to receive an award under a crime victim’s reparation law.
12. Wrongful Death Payment Exemption
You may exempt a payment on account of the wrongful death of an individual of whom you were a dependent, to the extent reasonably necessary for your support and the support of any dependents.
13. Life Insurance Payment Exemption
When someone who you depended on dies and you have a life insurance policy for them, you can keep the payment from that policy as long as it is reasonably necessary for your support and the support of any dependents.
14. Personal Injury Payment Exemption
You may exempt a payment, not to exceed $27,900, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of you or an individual of whom you are a dependent.
15. Compensation for Loss of Future Earnings Exemption
If you or someone you depended on lost future earnings, you can keep any payments you receive as compensation for that loss when filing for bankruptcy. You can keep this payment as long as it is reasonably necessary for your support and the support of any dependents.
16. Retirement Funds Exemption
You may exempt your retirement funds if those funds are in a fund or account that is exempt from taxation under certain sections of the Internal Revenue Code.
Impact of Exemptions on Bankruptcy
The exemptions in a Chapter 7 bankruptcy can have a significant impact on a debtor’s bankruptcy case. If a debtor’s property is exempt, it cannot be sold to repay creditors. This means that the debtor can keep their exempt property and still obtain a fresh financial start. However, if a debtor’s property is non-exempt, it may be sold to repay creditors, which can be a devastating loss for the debtor.
It is important to understand that exemptions in bankruptcy do not automatically apply to your assets. To ensure that your valuable property is protected, you must list it on Schedule C when you file for bankruptcy. If you fail to do so, the trustee may sell your property and distribute the proceeds to your creditors. Therefore, it is crucial to carefully list all your assets to prevent them from being sold in the bankruptcy process.
You can find the Schedule C Form at the United States Courts website.
Conclusion
Knowing the exemptions in Chapter 7 bankruptcy is essential to ensure that a debtor can keep their valuable assets and obtain a fresh financial start. It is important to keep in mind that exemptions vary by state. Seeking the advice of a bankruptcy attorney can help you navigate the complex process and protect your assets.
Find the Law
The exemptions discussed in this article can be found in 11 U.S.C. § 522(d) of the Bankruptcy Code.
Disclaimer: The information provided is for educational and informational purposes only and should not be construed as legal advice. The use of this information does not create an attorney-client relationship, and any communication with our service through this platform does not establish an attorney-client relationship. You should consult an experienced bankruptcy attorney for advice specific to your individual situation, as each case is unique and requires careful consideration of all relevant factors.