About bankruptcy exemptions

One of the biggest concerns people have about filing for bankruptcy is what will happen to their assets. While a Chapter 13 bankruptcy can protect assets much better than a Chapter 7, there are other ways to preserve assets and avoid liquidation. Bankruptcy laws are written in a way that helps debtors keep their property, which is done through federal or state exemption laws.

Federal exemptions

Federal bankruptcy exemption laws are in place to allow any debtor to file a claim if eligible. Because there are often residency requirements set forth by state law, any debtor who cannot claim a state bankruptcy exemption may be eligible to claim property protection under the federal exemptions. While many states offer more property protection, the federal exemptions have great protection coverage for essentials.

Under the Federal Homestead Exemption, debtors can exempt their home up to $125,000 in value, $20,200 of which can be used for a mobile home or other real estate. Personal property items such as furniture, clothing, antiques and the like are limited to a total of $11,525 and $550 per item. Jewelry up to a value of $1,450 and items used in a commercial trade up to $2,175 are allowed. The federal exemption also allows you to protect a motor vehicle worth up to $3,450. Insurance, retirement, and public assistance funds are generally fully exempt under the federal exemption.

state exemptions

Many states are more generous with their property exemptions than can be found in federal exemptions. However, some people are not eligible to claim state exemptions if they have not lived in the state for at least 2 years. Those who qualify could benefit from a higher level of protection. For example, some states allow houses of up to unlimited value to be exempt under their Homestead Exemption. However, there may be some restrictions on the number of acres that can be protected even if the home’s value is unlimited.

Many states also place a higher value on protecting personal property. Texas, for example, allows debtors to claim up to $30,000 in personal property items for an individual or up to $60,000 for a family. Texas also allows one motor vehicle of unlimited value per licensed family member to be protected, essentially allowing multiple cars to be exempt. Farm equipment, tools of the trade, and business machinery are also better protected by most state exemption laws than can be found at the federal level.

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