sometimes equated with “losing everything.” Although it is true that the
bankruptcy trustee can sell some of a debtor’s property to repay creditors,
bankruptcy law does allow debtors to keep certain kinds of property “exempt”
from such action. This blog, prepared by Mitchell Law Offices, your go-to bankruptcy
lawyer in Northern and Central New Jersey, focuses on a few of the most commonly used
federal bankruptcy exemptions.
Fully Exempt Property
bankruptcy exemptions are generous with regard to some types of property. This
means that the bankruptcy trustee cannot liquidate these items to repay
creditors. Some of the most common examples of this kind of exemption
- Health aids
- Tax exempt retirement accounts (including
401(k)s, 403(b)s, profit-sharing plans, SEP and SIMPLE IRAs, and defined
- Public assistance, Social Security, Veteran’s
benefits, Unemployment Compensation.
- Crime victim’s compensation
- Disability, unemployment, or illness benefits
- Life insurance payments for a person you
depended on, which you need for support
- Alimony and child support needed
Property Exempt Only Up
to a Certain Amount
Some of the most
common of these properties and their allowable exemption amounts are …
property (real property including mobile homes and co-ops): exempt up to
vehicles: exempt up to $4,000
appliances and furnishings, books, household goods, and musical instruments:
exempt up to $625 per item and totaling no more than $13,400
exempt up to $1,700
and Roth IRAs: exempt up to $1,362,800
books, and tools of the trade: exempt up to $2,525
property – any property you choose: exempt up to $1,325 and the unused portion of
the homestead exemption up to $12,575
How does it work?
If the debtor’s
equity in property (how much the property is worth, less any amounts owed on
it) is equal to or less than the exemption amount, the debtor keeps the
property. If the debtor’s equity in property is more than the exemption
amount, the bankruptcy trustee will pay the debtor the exemption amount,
and use the remainder to pay creditors.
Example: Sam bought a
car outright, and it’s worth $2,500. Using the federal bankruptcy exemption for
motor vehicles ($4,000), Sam would keep the car, because the exemption fully
protects his equity in the car.
If Sam’s car were
worth $10,000, the bankruptcy trustee will likely sell the car, pay Sam $4,000
for the exemption, and use the rest to pay his creditors.
If you’re considering
bankruptcy, understanding the available bankruptcy exemptions is crucial.
Experienced bankruptcy attorney Douglas Mitchell can assess your situation and provide individualized advice on
how bankruptcy will affect your property. Contact Mitchell Law Offices today.