What are bankruptcy exemptions?
A San Francisco bankruptcy attorney answers the consumer question of What are bankruptcy exemptions?
What are bankruptcy exemptions?
The bankruptcy code provides for certain exemptions that can be applied towards personal property or equity values in a home or car. The purpose of an exemption is to allow an individual filing to protect the value of an item and retain possession of it during and after the bankruptcy.
Do the bankruptcy exemptions apply under both chapters 7 and 13? Yes. In a chapter 7 bankruptcy all nonexempt property is liquidated and repaid to unsecured creditors. In a chapter 13 bankruptcy the exemptions are used to protect the value of items so the debtor will not have to repay that additional amount. One purpose of the bankruptcy code is to allow the debtor to retain certain property so they are able to emerge with certain necessities.
If I still owe on my home but also have equity, can I protect it?
Yes. California has opted-out of the federal bankruptcy exemptions, meaning that California law provides for certain amount of equity that can be protected during bankruptcy. Individuals can exempt up to $75,000 and couples can exempt up to $100,000 in home equity. That generally means that those filing bankruptcy do not have to worry about their home being sold to repay creditors.
What happens if I own more than what I can exempt?It depends. Sometimes the trustee will not want to put in the effort to sell a certain item if you can only exempt a portion of it. For example, if you have a $10,000 car and only have an $8,000 exemption, it might not be worth the trustee’s time to go through the process of selling it to realize $2,000.
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