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/protect their assets from being seized and/or sold by their creditors or the Court appointed Bankruptcy Trustee. In the overwhelming majority of cases the answer is an unequivocal, yes. In New Jersey debtors are given the right to protect all of their assets by asserting the exemptions available to them (which is the amount of equity debtors are allowed to keep in the particular category of assets) under either §522 of the U.S. Bankruptcy Code or New Jersey state law. Since the exemptions available under§522 are exponentially greater than those allowed by New Jersey state law almost every individual debtor filing for bankruptcy protection in New Jersey chooses to protect their assets pursuant to §522, also known as the federal exemptions.

In the vast majority of cases, a debtor's assets will fall 100% within the exemptions/protections provided by §522 of the US 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 asset. If a debtor's interest/equity in the specific category of assets is the same or less than the amount of the bankruptcy exemption allotted to that particular asset, then the asset is fully protected from attachment or seizure by 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 asset categories protected by§522, and the specific amount of the exemptions (equity) debtors are allowed to keep in the asset category described.

The above list includes most of the major federal exemption categories protected by allowed §522 but there are also many other less commonly used exemptions provided for under §522 of the U.S. Bankruptcy Code. These federal exemptions, as indicated above, are different in description and the amount being protected, from the various state exemptions including New Jersey's exemptions. I wanted the reader to be aware, however, that, while a New Jersey debtor might never choose the New Jersey exemptions over the federal exemptions, a debtor filing for bankruptcy protection in New York may well choose the New York exemptions which allows a homeowners in lower NY State to keep $170,825.00 equity in his/her home and a joint homeowners up to $341,650.00 of equity in their homes, respectively, as opposed to§522 which allows individual and joint debtor homeowners to keep only $25,150 and $50,300 of equity in their homes, respectively.

As an example of how these exemptions are applied to an individual or joint debtor's case, under the §522 or federal wildcard exemption, a debtor or joint debtors can only protect up to an additional $11,975.00 or $23,950.00 of equity, respectively, in any particular asset which is not fully protected/covered by the specific exemption amount allowed for that asset category. So more specifically, if joint debtors in New Jersey have $10,000 of equity in 1 of their vehicles, they would only be able to protect a total of $8000 of equity in their vehicle under the motor vehicle exemption, but could easily protect the remaining $2000 of equity they have in their vehicle through assertion of their §522 wildcard exemption (see §522 exemptions tables).

In the overwhelming majority of cases, the assets owned by prospective debtors clearly fall within the §522 exemption limits, and are accordingly fully protected by The United States Bankruptcy Code. Understanding your exemptions is one of the most important legal issues prior to filing a bankruptcy so consultation with an experienced bankruptcy attorney is critical. To learn what exemptions you may qualify for contact our firm to make an appointment with Mr. Alster today. Also see article in this website entitled "A Chapter 7 Trustee's duties and obligations with regard to seizing a debtor's asset."

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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 debtors at the Trustee meeting (also called the 341A hearing). Individuals should realize that a non-lawyer cannot appear and/or represent debtors in Bankruptcy Court should a problem arise concerning these or any other legal issues.