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Bankruptcy Exemptions

One of the most commonly asked questions by individuals who either need to or are considering filing for Chapter 7 or Chapter 13 bankruptcy protection, is whether they will be able to keep their assets. In the overwhelming majority of cases the answer is an unequivocal, yes.

In the vast majority of cases, debtor(s) fall 100% within the exemptions provided by the Bankruptcy Code. A bankruptcy exemption is by definition an amount of money and/or equity that a debtor or joint debtors are allowed to keep in a particular category of assets. If the debtor(s)' interest/equity in the specific category of assets is the same or less than the amount of the bankruptcy exemption than that particular asset cannot be attached or seized by either the Chapter 7 or 13 Trustee, or by any of the debtor(s) creditors. In most Chapter 7 and 13 cases the decision as to whether or not a debtor has any interest/equity in a particular asset, above that allotted by the Bankruptcy Code, is made by the Chapter 7 or 13 Trustee.

Below are several of the many categories of assets, and the specific amount of the exemptions (equity) debtor(s) are allowed to keep in the asset or category of assets described.

Real Property $21,625.00 $43,250.00
Motor Vehicle $3,450.00 $ 6,900.00
Household Goods $11,525.00 $23,050.00
Personal Injury $21,625.00 $43,250.00
Wildcard-Any Property $11,975.00 <23,950.00

The above list includes most of the major exemptions allowed in New Jersey. These exemptions can vary from state to state. There are many other less commonly used exemptions also provided for under §522 of the U.S. Bankruptcy Code. Under the wildcard exemption, a debtor or joint debtors can protect up to an additional $11,975.00 or $23,950.00 of equity existing in any particular asset or category of assets not covered by the specific exemptions allowed for that asset category.

In addition to debtor(s) knowledge of the above referred to §522 exemptions, debtor(s) need to realize that it is not the purpose of a Chapter 7 or 13 Trustee to strip debtor(s) of every penny which is not protected by a specific exemption. The function of the Chapter 7 and 13 Trustee is to ascertain whether the debtor(s) owns and/or has an interest in an asset that is substantially beyond the amount of the exemption provided by §522 of the U.S. Bankruptcy Code. If the Trustee determines that such an asset exists, then the Trustee may locate and sell the asset, and after deducting the Trustee's fees, provide all of the debtor(s) unsecured creditors with an equal portion of any remaining funds from the sale of the assets. In most cases, the Trustee will require the debtor(s) to sell the asset or require the debtor(s) to pay the Trustee a cash settlement based on the non-exempt value of the asset.

In the overwhelming majority of cases, the assets owned by prospective debtor(s) clearly fall within the exemption limits, and the debtor(s) equity is protected by §522 of The United States Bankruptcy Code. In the real world it is simply not worth a Trustee's time to sell an asset which the debtor(s) might have a $1,000.00 equity interest in above the amount protected by §522. Put simply, it would make no sense for a Trustee to do all the necessary work to locate and force a sale of such an asset, since the Trustee's legal fees would likely eat up any proceeds from such a sale, leaving no money available to pay the debtor(s) unsecured creditors. A Trustee must take this real world scenario into consideration before they take any action to force a sale of a debtor(s) asset. By way of example, before a Trustee would seriously challenge a debtor(s) right to maintain all of their interest in their residence, most Trustees will reduce the fair market value of the debtor(s) residence by approximately 10% to allow for closing costs, before calculating the real property exemption allotted to debtors under §522, and determining if any proceeds from a prospective sale would be available to pay the debtor(s) general unsecured creditors.

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Mr. Alster trusts that the above information will hopefully make all individual(s) who are considering filing for personal bankruptcy protection aware of the importance of consulting with and being represented by an experienced bankruptcy lawyer who has expertise in dealing with these issues. There are many non-lawyers advertising their credentials to draft bankruptcy petitions and/or represent debtor(s) at the Trustee meeting (also called the 341(a) hearing). Individuals should realize that a non-lawyer cannot appear and/or represent debtor(s) in Bankruptcy Court should a problem arise concerning these or any other legal issues.

Understanding your exemptions is one of the most important legal issues prior to filing a bankruptcy so consultation with an attorney is critical. To learn what exemptions you may qualify for contact our firm today.

The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship.

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