Student Loans and Bankruptcy

Exemptions With Chapter 7 Explained

2 February 2022

Roy Sanders

If you are considering filing for Chapter 7 bankruptcy, you might be confused about exemptions. For many filers, the issue of exemptions brings up fears of losing personal property to the bankruptcy trustee. In most cases, most filers lose little to no property when they file because their property is protected by exemptions. Read and find out more. 

What Filers Should Know

You should file bankruptcy in your state of residence since each state has its own idea of what exemptions are available to filers. One state might offer all filers an exemption of their primary family residence, regardless of its value. Other states might offer filers a certain amount of money that can be deducted from the value of the home. Some states allow filers to keep all work-related tools, clothing, and vehicles. Others won't mess with your heirloom jewelry. Before you make the bankruptcy decision, take a look at what your state provides in the form of exemptions.

What Else Filers Should Know About Exemptions

In some states, filers can choose to use either their own state's exemptions or federal exemptions. You cannot, however, mix and match between the two categories.

Filers may wonder how much to reveal about their personal belongings when filling out the bankruptcy paperwork. You should know that you are under oath (administered at the creditor's meeting) to be honest and accurate when listing your assets. The bankruptcy trustee will verify values using deeds, titles, bank statements, and more to make sure filers are listing everything they own. In some cases, a representative of the bankruptcy court will pay a visit to personally inspect a filer's property and determine values. You will have several weeks' notice before that occurs, however.

When viewing available exemptions, remember that the bankruptcy court uses the difference in what the item is worth and how much the filer owes on it. If you owe money on an auto loan, for instance, the value of the vehicle may be little to nothing for new vehicles with a large pay-off attached. Also, your used items are of little use to the bankruptcy court – they are often more trouble to obtain and sell than they are worth.

Very few filers have enough property to cause problems when they file. If you want to file chapter 7, make a list of all items you have, the balance of any loans on that property, and talk to your bankruptcy lawyer about it.

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