Q.What’s the difference between exempt and nonexempt property?
A.If you're planning to file for bankruptcy, you must face the fact that you may lose some, if not all, of your property. However, regardless of the bankruptcy you file (Chapter 7, Chapter 11, Chapter 13), most of the items owned by an individual facing the possibility of filing for bankruptcy are exempt, which means the bankruptcy filer can keep them.
Exempt property typically includes:
- Motor vehicles, up to a certain value;
- Clothing, household goods, appliances, and home furnishings;
- Jewelry, up to a certain value;
- Tools of the debtor's trade or profession, up to a certain value;
- IRA's and Pensions;
- Social Security, Disability, Welfare, and Unemployment Compensation Benefits accumulated in a bank account not commingled with other monies; and
- The bankruptcy filer's primary residence (so long as the equity meets the homestead exemption in your state).
The value of individual exemptions vary widely from state to state and can make a huge difference in the amount of property the bankruptcy petitioner can retain. We strongly suggest you consult a local bankruptcy attorney to determine the specific amount of the exemption and the types of property your state permits a bankruptcy filer to retain.
The state exemptions, however, are not available to recent state residents. Under the new bankruptcy law, the bankruptcy filer must live in a state for at least two years before filing for bankruptcy to avail him or herself of that state's exemption laws. If the bankruptcy filer has only lived in the state for less than two years, the bankruptcy filer must use the exemptions available in the state where s/he used to live. For example, if you recently moved from California to Nevada and you have a fairly valuable car, you might want to wait to file for Chapter 7 because once you've been in Nevada for two years, you can claim its $15,000 exemption for motor vehicles. If you have to use California's exemptions, you can only keep a vehicle with less than $2,300 in equity.
If you're concerned about losing your property, and you are gainfully employed, you should consider filing a Chapter 13 bankruptcy instead. A Chapter 13 Bankruptcy will, in most cases, enable you to keep your property by paying off your debts in monthly installments under a five year court approved plan, which your creditors will be required to accept.