What Are Bankruptcy Exemptions—and Why Do They Matter?

Buchalter & Pelphrey Attorneys At Law

Are you considering filing Chapter 7 or Chapter 13 bankruptcy? One important factor to consider is whether bankruptcy exemptions will cover everything you own.

An exemption is a bankruptcy law that covers a certain type of property or level of equity. The following is an overview of why bankruptcy exemptions matter in both Chapter 7 and Chapter 13.

Chapter 7: Exemptions and Liquidation

“Liquidation” is a word that has kept many people from even considering bankruptcy. It refers to when the Chapter 7 bankruptcy trustee seizes nonexempt funds and assets to repay the filer’s creditors.

However, most people who file Chapter 7 can actually keep everything they own by claiming state or federal exemptions. When you claim a certain exemption, you are shielding the corresponding asset or account, thereby preventing the trustee from using it to repay your creditors.

Every state has different exemption laws. You might also be able to use federal exemptions, but your state may or may not allow you to do so. Florida, for example, will not permit you to use federal exemptions. It does, however, in most circumstances allow you to protect your entire home, while other states limit the amount of equity you can keep.

If you can manage to protect everything you own from liquidation, Chapter 7 is most likely a great option for you (provided you qualify). If you don’t qualify, or you would lose too much property through liquidation, Chapter 13 might be a suitable alternative.

Chapter 13: Exemptions and Your Monthly Payment

Unlike Chapter 7, Chapter 13 does not involve liquidation. However, bankruptcy exemptions still come into play.

When you file Chapter 13, your creditors are entitled to just as much as, if not more than, they would receive if your nonexempt assets were liquidated under Chapter 7. As a result, your 3-5-year repayment plan will need to cover the total value of your nonexempt assets. The more nonexempt assets you own, the higher your monthly payment will be.

Once you complete your plan, the court will discharge any qualifying debts that your plan didn’t cover. You can also keep all your nonexempt property because you paid your creditors the total nonexempt equity of that property.

In general, bankruptcy exemptions play a significant role in whether bankruptcy is right for your situation, and, if so, which chapter you should file. For more personalized guidance, retain the support of an experienced law firm.

Let Our Attorneys Answer All Your Questions

With roughly half a century of combined legal experience, our lawyers at Buchalter & Pelphrey Attorneys at Law have truly seen it all. We can assess your situation and help you understand how each chapter of bankruptcy might affect your level of debt, property ownership, and other financial factors. If you are looking for a way to overcome severe financial hardship, we possess the legal skills needed to develop a personalized and highly effective plan for your case.

Schedule your courtesy review by calling (321) 320-6088 or reaching out to us online today.

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