If you have been putting off filing for bankruptcy because of fears of losing property, you might want to gain a better of understanding of exemptions. Exemptions allow filers to retain their property, but the way they work can be confusing. The below information should help you to better understand exemptions in general and special wildcard exemptions in particular.
Understanding Property Loss and Exemptions
Make no mistake about it — nothing gets rid of debt like a chapter 7 bankruptcy filing. With total debt relief, however, can come the unpleasant fear of losing personal property. Property that is seized during a bankruptcy case is sold and used to reimburse certain high-priority creditors to minimize their losses due to the bankruptcy action. While it's true that chapter 7 can result in the forfeiture of some property, filing for bankruptcy was not meant to deprive consumers of everything they own. Exemptions, therefore, allow filers to keep a certain portion of their belongings.
What to Know About Exemptions in General
Exemptions can be an item or a dollar amount. For example, filers might have a vehicle exempted or a dollar amount of value on the vehicle might be exempted. Each state has different exemptions. In addition, some states use federal exemptions or allow filers to choose between state and federal exemptions. If you have recently moved to a new state, some states allow you to use exemptions from your previous state of residence.
Understanding the Wildcard Exemption
So-called wildcard exemptions allow filers to use a sum of money for any reason they like. For instance, if the family home exemption is $50,000 but the home is valued at $60,000, a $10,000 wildcard exemption can be used to keep the home safe or for any other reason. In many cases, property that is vulnerable to seizure can include all types of real estate, vehicles, jewelry, artwork, bank accounts, and almost anything of value to the bankruptcy trustee. Along with the wildcard exemption, some states let filers use what is left over from one exemption on another item. For example, if you are allowed $20,000 as a vehicle exemption but only need to use $15,000 of it, the leftover $5,000 can be used on other items.
Most filers don't lose any property with a bankruptcy filing and that is only partially due to exemptions. Ask your bankruptcy lawyer about these other options to avoid property losses:
- Paying cash to make up the difference between the value of an item and the exemption.
- Trading property that might ordinarily be exempted for non-exempt property.
To find out more about how your assets are affected by factors like the wildcard exemption, speak to a bankruptcy attorney.