Where you live determines the type of exemptions you are able to claim in your bankruptcy, and the way exemptions can impact a bankruptcy will depend on the type of bankruptcy you file. For Chapter 7 bankruptcy, exemptions can keep property in your hands, and away from your creditors. Keep reading to get an overview of how exemptions work in a Chapter 7 bankruptcy.

If you are facing a Chapter 7 bankruptcy, one of your primary concerns will probably be about your property, whether you can keep your home, your car, etc. The fate of your property will rely on how much it is worth, and what kind of property it is. Certain property can be made exempt from the bankruptcy, meaning that creditors cannot liquidate your property in order to recover payment.

In Chapter 7 bankruptcy, almost every single asset comes under the bankruptcy estate, and if they so choose, a bankruptcy trustee can sell these assets and property in order to pay off creditors. But this does not mean that all your assets will be sold. This is because of exemptions. For example, if there is a homestead exemption, then the bankruptcy trustee may not be able to sell your house to create funds with which to pay off a creditor. Because of these exemptions, most people who file for Chapter 7 bankruptcy can still keep most of their property, if not all of it.

In some states, you have to use only the state's exemptions. In other states, you can choose to either go by the state's exemptions or to use the exemptions available under federal law. Under either the federal system or under your state's system, you will likely have some of the equity in your house, your car, and your bank accounts protected through exemptions. There are even states where there is an unrestricted homestead exemption, which means that you could keep your house even if you no longer have a mortgage on it. Personal property such as furniture and clothes are typically safe from bankruptcy, unless something is of substantial monetary worth.

Here is a rundown of the exemption process. A bankruptcy trustee will examine your property and how much the property is worth to consider whether or not the assets are worth being used to pay off creditors. For example, if you have a car that would sell for $8,000, but you have a $5,000 loan on it, only $3,000 from the sale could go toward repaying creditors. The car is not actually worth $12,000 to the trustee then, only $3,000.

Similarly, in the above example, if there is a $5,000 car exemption in your state, then the car would only be worth $3,000 to the trustee, not worth selling. With such an exemption, you can feel fairly confident that you get to keep the car. If for example, your state only has a $2,000 exemption, then the trustee may still sell the car, but because of the exemption, the trustee would pay you $2,000.

Under federal exemptions, and in the exemption system in some states, there is something known as a wildcard exemption. This is a type of exemption that will cover a certain amount of absolutely any type of property. So in the above example, if your state only has a $2,000 car exemption, but there is also a $4,000 wildcard exemption available, you can combine the two to provide a $6,000 exemption for your car, effectively saving it.

If you want to learn more about how Chapter 7 bankruptcy works, or to find out what exemptions are available in your state, do not hesitate to contact a legal expert. You can find the bankruptcy lawyer you need on our directory today!