Bankruptcy was developed in order to provide financially overwhelmed individuals with a second chance and a fresh start free from debt. Realistically, a few poor financial decisions may result in long-term negative consequences and inescapable debt.
The Federal Government understands this, and in order for these individuals to be beneficial to society once more and contribute to the economy, they must be relieved of the debt they are facing.
However, not only is there a negative connotation attached to bankruptcy, but many people fear filing for bankruptcy because they believe they will lose their home, their car, and much of their personal property. Some have the mentality that bankruptcy results in the sale of all personal belongings in order to compensate creditors.
Because of this, many people who should file for bankruptcy do not. In order to protect petitioners from losing all of their possessions, both the Federal Government and state governments have established bankruptcy exemptions.
The term “bankruptcy exemption” refers to an item that cannot be claimed by creditors during a bankruptcy case. An individual cannot be forced to sell items that are specified as bankruptcy exemptions. The homestead exemption will protect a designated percentage of a home’s value and allocate it to the owner. It will not, however, protect the home from being sold to compensate the petitioner’s creditors.
State bankruptcy exemption laws often vary in the percentage of value that item is considered to be exempt. While one state may protect only $2,000 worth of personal property, another state may protect up to $4,000 worth of personal possessions. Bankruptcy exemption laws protect a wide range of objects and possessions.