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What Property Is Exempt During a Chapter 7 Bankruptcy?

Bankruptcy cases are meant to help individuals and companies receive a fresh financial start in life. For debtors who do not have many assets or much income, most debts can be discharged, or wiped out, during a Chapter 7 bankruptcy.

When filing a Chapter 7 bankruptcy, a debtor is not allowed to keep all of his or her property. In exchange for the benefit of wiping out most of a person’s debt, the debtor has to give up any property that is not considered “exempt.” These exemptions come from either state or federal law.

In Florida, state residents who file bankruptcy are required to use the Florida exemption rules rather than the federal exemption rules. Fortunately, Florida’s exemptions are very favorable to residents, and often allow debtors to keep more property than the federal exemptions would allow.

The biggest exemption Floridians can use is the homestead exemption. This exemption covers all of the value of a person’s home, provided that that the debtor has lived in the home for 1,215 prior to the bankruptcy filing. Additionally, the debtor’s homestead must have less than a half-acre of land inside a city, or less than 160 acres of land in a rural area. If the debtor’s home does not meet these qualifications, then the homestead may not be entirely protected.

In addition to the homestead exemption, a debtor’s personal property is protected up to $1,000. Personal property can include anything from furniture to clothing to artwork, with the exception of vehicles. While $1,000 may not seem like a lot of money, personal property is valued at its actual resale value, not at its purchase price. For example, even though a debtor may have purchased a bedroom set for $1,000, it is likely that the debtor could not re-sell that same bedroom set at a garage sale or yard sale for the same price. After years of use and regular wear and tear, that same bedroom set may only be worth $200-$300. Likewise, while clothing may be expensive to purchase initially, most people could not re-sell their wardrobe for very much money.

Vehicles are not covered by the personal property exemption. Instead, there is a separate vehicle exemption which protects up to $1,000 in equity. The vehicle exemption is often the biggest obstacle for debtors who want to file for a Chapter 7 bankruptcy. For many people, it is difficult to imagine that they may have to give up their car, especially in areas like South Florida where there are few options for reliable public transportation.

The vehicle exemption protects equity, not the car’s value. For instance, if a person purchases a $10,000 car but has an auto loan for $9,500, there is only $500 in equity in the vehicle. As a result, the $1,000 exemption would protect the entire car. In contrast, if a person purchased the same $10,000 car but only has a $6,000 auto loan, then the exemption would only cover $1,000 of the $4,000 in equity that the debtor owns. If that debtor wanted to keep his or her vehicle, then the debtor would have to pay the trustee $3,000 for the amount of equity not covered by the $1,000 exemption.

There are multiple other types of exemptions that cover certain types of income and property. In order to know for sure how much of your property would be protected, it is important to speak with a bankruptcy attorney. At Loan Lawyers, our attorneys can advise you on the best way to keep the most of your property during a bankruptcy case as well as your different options for filing.

To schedule your free appointment, contact our office today by calling (888) FIGHT-13 (344-4813).