Chapter 7 Exemptions

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Jun 29, 2022

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Bankruptcy exemptions refer to assets that you may keep when you file for Chapter 7 bankruptcy. As a general rule, Chapter 7 or total liquidation bankruptcy will require that you surrender most of your cash and many of the possessions you own so these items can be sold.

At the end of a Chapter 7 bankruptcy, any debts you owe your creditors are forgiven and do not have to be paid. Therefore, the required sale of your assets and possessions can allow creditors to receive some of the money owed to them. While this law exists for creditor protection, the bankruptcy courts also want to make sure that those seeking bankruptcy protection do not lose everything. As such, exemptions exist to allow you to keep certain assets. 

Exemptions are set on both a federal and a state level. This means that when you file for bankruptcy, you may usually choose whether you wish to use the state exemptions or the federal ones.

Some states are significantly more generous when it comes to exemptions than others. In the past, filers could take advantage of this by filing for bankruptcy in states where they weren’t permanent residents, but changes to the bankruptcy code have instituted residency requirements and put an end to this practice. However, it is still possible to make use of the exemptions of the state where you actually live, or the federal exemptions, depending on which stand to benefit you the most.

Some common exemptions on either a federal or state level include:

  • A homestead exemption that permits you to keep the value of some of the equity in your home.
  • An exemption that allows you to keep cars if the value of the vehicle is below a set dollar amount (such as $2500).
  • A wild card exemption that permits you to keep any personal property you want, valued at up to a certain dollar amount. People may use this to keep things like family heirlooms or wedding jewelry.
  • “Tools of the trade,” which are possessions you require to conduct business.
  • Proceeds from court settlements.
  • Retirement accounts, like IRAs.

This is just a brief list of some of the exemptions available. You may qualify for more or fewer exemptions depending on your finances and where you live. To understand what you will likely be allowed to keep in a Chapter 7 filing, it is important to consult with a bankruptcy lawyer in your area. 

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