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What Are Bankruptcy Exemptions?

In difficult economic times, it is not uncommon for people to experience financial problems that can lead to serious credit issues. Prior to today's credit-driven society, people used to rely on credit to acquire items that were beyond their financial means, such as a car or a home. Today more than ever, people rely on credit to simply provide many of the necessities required just to live a normal existence.

People utilize all manner of credit from credit cards to personal promissory notes to simply make it from day to day, and when issues develop with credit worthiness, it can be a difficult situation for many people to deal with.

Certain Personal Assets Can Be Exempted from Bankruptcy Proceedings

Fortunately, there are provisions such as bankruptcy that enable people to find relief from the crushing stress of financial problems, but many people have questions as to exactly what you can keep and what must be given up during bankruptcy. During bankruptcy proceedings and depending on the type of bankruptcy being declared, certain assets can be exempted from the process and are kept by the individual.

Bankruptcy Exemptions

Bankruptcy exemptions are basically personal items and specific types of personal property such as automobiles and wedding rings.

In other instances, exemptions allow individuals to keep a certain dollar amount of their assets, but regardless of the type or amount, all asset exemptions are removed from the bankruptcy proceedings and kept by the individual.

Chapter 7 and Chapter 13 Offer Different Exemptions

In Chapter 7 bankruptcy:

  • a trustee is appointed to sell off the individual's assets in order to pay off the creditors; and
  • exemptions allow the individual to keep certain items and assets and save them from being sold off to repay the debt.

In Chapter 13 bankruptcy:

  • the individual is allowed to keep all of their property and their debt is reorganized in a manner in which they can make payments to their creditors; and
  • nonexempt assets are paid to the creditors, so any exemptions the individual is able to attain will go toward minimizing the amount of money that must be paid to the creditors after the settlement.

Financed Assets and Property Are Usually Repossessed

Other assets, such as those that are utilized to secure the debt, such as an automobile that is being financed or any other property that is used as collateral against a promissory note is usually repossessed prior to bankruptcy, so most often it cannot be claimed as an exemption unless it is owned by the individual free and clear. Bankruptcy exemptions allow people to maintain a certain amount of personal assets and property during a trying financial period and offer individuals a way to help start over.

LegalNature can help you with all of your personal legal form needs such as promissory note forms and promissory note templates. Let us help you get started today. Click here to create your bankruptcy worksheets now.

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