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The exemptions under Chapter 7 and Chapter 13 are identical at this time.  An individual may exempt $7,500.00 of personal property (any paid for personal property) $15,500.00 ($31,000.00 if a couple is married, own the home jointly and are filing jointly) of equity in their homestead and within reason, clothes, jewelry and qualified retirement accounts are fully exempt.

Under Chapter 7 bankruptcy a debtor is allowed to keep (exempt) $7,500.00 of their personal property, however in order to get the benefit of the fresh start, the debtor must turn over to the trustee any property which is not listed as exempt and that property will be sold and the proceeds will be distributed to unsecured For example, if a debtor owns some household goods and furnishings, clothes and has an older vehicle worth a few thousand dollars, he likely would be allowed to keep all of his possessions.  Unfortunately, if a similar debtor owns household goods, clothes but has a free and clear more valuable vehicle, he’d likely lose his vehicle to the trustee. Likewise, the debtor can keep (exempt) $15,500.00 of equity in his homestead. For example, if an individual has a free and clear home worth $100,000.00 and files a Chapter 7, the trustee would sale the home, pay the debtor the first $15,500.00 and the remainder would be distributed to unsecured creditors. In another example, if the debtor is still paying for a home worth $100,000.00 and the outstanding mortgage owed is $85,000.00, the debtor’s equity would be $15,000.00 ($100,000.00 minus 85,000.00) and he would not lose his home because he could apply his homestead exemption to protect the $15,000.00 of equity.

Under a Chapter 13 bankruptcy, the debtor has the same exemptions, however instead of losing the non-exempt property, they have to pay to their unsecured creditors the same amount of value over a 3 to 5 year period.  Using the examples above, if a debtor needs bankruptcy relief, but owns a free and clear $100,000.00 home, but doesn’t want to lose their home, they can elect to file a Chapter 13 instead of a Chapter 7 and pay to their unsecured creditors the amount of the non-exempt equity, which in this example would be $84,500.00 ($100,000.00 minus homestead exemption of $15,500.00) over a 3 to 5 year period.

Other than the personal property and homestead exemptions, there are several other categories of property that a debtor may claim as exempt from the bankruptcy estate. Retirement accounts are largely exempt so long as the accounts are qualified under the Bankruptcy Code.  Typical retirement accounts which are qualified include 401k, IRA, SEP and pensions. Clothes and jewelry (personal wear) within reason are also typically fully exempt.

If you are considering filing bankruptcy and want to know more about your options and the next step, please email us or give us a call at 334-366-6086 for a consultation. Our expert bankruptcy attorneys can help you get your fresh start, and provide the one-on-one attention you need and deserve.

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