It's not difficult to believe that just about every potential bankruptcy debtor wants to know what property he or she can keep when filing a bankruptcy case. Exemptions are important in both Chapter 7 and Chapter 13 bankruptcy cases: In a Chapter 7 bankruptcy case, exemptions determine how much property a debtor may keep; In a Chapter 13 bankruptcy case, exemptions help lower plan payments.
When a bankruptcy case is filed, almost all of a debtor's assets become property of the debtor's bankruptcy estate, which may then be used to pay unsecured creditors, as long as such property is "non-exempt" pursuant to the applicable set of exemptions chosen by a particular state's legislature.
Each state and the federal system have its own set of exemptions. Some states require debtors to solely use their own exemptions, while others offer a choice between their system and the federal exemptions. Because exemptions differ by state, filing in one state may be more advantageous than filing in another because a debtor may retain more property under one state's particular set.
An exemption is like a homestead allowance in that it prevents certain property from being attached by creditors. In a bankruptcy context, this means that such property is not considered part of a debtor's bankruptcy estate. Specifically, exemptions in a bankruptcy case allow debtors to keep certain property necessary for everyday living so that the debtor may make a "fresh start" moving forward beyond the bankruptcy case.
Many exemptions protect specific types of property, such as a motor vehicle, household goods, or clothing. An exemption may cover the entire value of the asset or just up to a certain dollar amount of an asset's value. Some exemptions, called "wildcard exemptions," may be applied towards any property owned by the debtor.
In a Chapter 7 bankruptcy, which is technically a liquidation under the Bankruptcy Code, if an asset is exempt, the bankruptcy trustee may not liquidate or sell it to pay unsecured creditors. In a Chapter 13 bankruptcy, which is technically a reorganization under the Bankruptcy Code, the aggregate value of all of a debtor's nonexempt assets must be paid to general unsecured creditors (GUCs) in the debtor's Chapter 13 plan. Thus, the lower the value of nonexempt assets, the less money that has to be paid to GUCs over the three to five year period that a Chapter 13 plan may last.
At Loan Lawyers, our South Florida consumer rights and debt defense attorneys can help individuals determine their exemptions under Florida law and the Bankruptcy Code. For a no-risk, no-cost consultation, contact one of our South Florida consumer defense attorneys today by calling (888) FIGHT-13 (344-4813).