Chapter 7 Bankruptcy Exemptions

Individuals filing for Chapter 7 bankruptcy, will have an opportunity to keep certain possessions and assets. Since the laws that govern Chapter 7 bankruptcy exemptions are different with each state, it will be crucial that an individual check their state laws before moving forward with their bankruptcy.

Generally, homesteads or the personal residence will be protected only to a certain degree. The size of the residence and the dollar amounts will determine the exemption allowance, if any. Most states will protect pensions, burial plots and clothing.

The federal government also allows for Chapter 7 bankruptcy exemptions. These can be social security benefits, retirement benefits and veterans benefits. There are certain benefits for retired federal employees that are also protected. These may include disability benefits, survivor benefits, death benefits, and pensions. 

The following information is provided only as a guideline. Anyone contemplating bankruptcy needs either to meet with an attorney or thoroughly research what is expected of them in a Chapter 7 bankruptcy.  The idea for the exemptions is not to destroy families or businesses by taking away their ability to survive, but offer some protection.

A Chapter 7 bankruptcy may also be known as a straight or liquidation bankruptcy.  In this bankruptcy most of the individual's unsecured debts are discharged.  These may include medical bills, personal loan(s), outstanding utility bills, garnishments against wages, credit card(s), judgments against the individual as the result of a car accident, payable loans and any deficiencies from a vehicle(s) that may have been repossessed.

Chapter 7 does not automatically discharge student loans, there is a process that the individual needs to go through that will determine if they are eligible or not.

Obviously if the debt was the result of any type of illegal activity, it will not be allowed. Other discharges that are not allowed are: criminal fines or required rebursements, verdicts from drunk driving situations, family support, more recent taxes or debts due a partner resulting from a divorce.

As far as exemptions, the bankruptcy court will look at the equity in the property.  If there is enough equity in your home(s) or vehicle(s), and the equity is exceeding the federal and state exemption allowance, then you may lose your home(s) and car(s). If you do not have enough equity, you may keep the property and reaffirm the mortgage and car loan.

Chapter 7 bankruptcy exemptions protects the debtor's property.  The exemptions will take into account certain personal items, tools that belong to the debtor, equipment used for work, residence, vehicles and other properties. If there are some pieces of property that are not protected, then the court assigned bankruptcy trustee will have the authority to take the non-exempt property and use the money to pay-off the creditors.

Although filing for bankruptcy is very stressful and embarrassing, it is also a way to start a new life. Laws are in place like the Chapter 7 bankruptcy exemptions which allow the individual to keep certain possession and assets with which to begin their new life.