The word
“bankruptcy” often conjures up troubling images of destitute
individuals who are required to leave their homes and valuable possessions
behind and begin a new life without any resources or property to their name.
This misconception is often the primary reason that individuals do not file for
bankruptcy when they should.
Bankruptcy
is designed to provide people with the opportunity to rid themselves of debt
and start anew with no standing responsibilities to previous creditors. While
it is true that an individual who files for Chapter 7 bankruptcy may be
required to part with some valuable possessions, Federal bankruptcy exemptions
have been instituted in order to ensure that a petitioner does not lose all of
their belongings and property. Chapter 7 bankruptcy exemptions allow
individuals to keep many of their cherished items even after they file for
bankruptcy. There are also Federal bankruptcy exemptions related to the types
of debts that can be discharged.
Chapter 7 bankruptcy exemptions outline specific debts that cannot be discharged through a
bankruptcy petition. After an individual files for bankruptcy, he/she will
still be required to pay alimony, child support, and school loans. The good
news is that Federal bankruptcy exemptions also declare specific property that
cannot be touched in the event of bankruptcy.
Under homestead exemptions, for example, individuals
who own a home may be permitted to keep their house if they can continue making
payments and avoid foreclosure. Chapter 7 bankruptcy exemptions protect up to
$3,225 of an individual’s purchased motor vehicle. Therefore, if an individual
has paid for a car that is over $3,225, he/she will either need to surrender
the car or financially compensate for the “non-exempt equity,”
meaning that he/she will be required to provide the bankruptcy estate with the
difference so that it can be distributed amongst the creditors.
Federal
bankruptcy exemptions conserve up to $10,775 of an individual’s personal
property, including clothing, furniture, pets, and books. They will also
preserve up to $1,350 worth of jewelry.
Under Chapter 7 bankruptcy exemptions, petitioners
will be permitted to keep up to $10,755 of their life insurance policy, as well
as all of their Social Security benefits, unemployment compensation, and any
restitution that they received for being the victim of an injury. If a
petitioner is receiving alimony or child support, this also cannot be touched.
Federal
bankruptcy exemptions protect an individual’s 401(k) and up to $1,095,000 of a
petitioner’s IRA. Also, up to $925 of ‘other’ property will be protected under
the wild card exemption. This means that if an important belonging was not
protected under the other bankruptcy exemptions, an individual will be
permitted to keep it under the wild card exemption. In short, because of the
establishment of Chapter 7 bankruptcy exemptions, individuals who file for a
Chapter 7 bankruptcy will not become destitute.
