When considering a bankruptcy filing, many people imagine repo companies arriving at their home to take their possessions, and sell them to the bank. They imagine being left standing empty handed. Debt free, but without their possessions. This is an exaggerated over-simplification of the bankruptcy process. The reality is that bankruptcy law includes bankruptcy exemptions designed to help protect property during bankruptcy.
What Are Chapter 7 Bankruptcy Exemptions?
Bankruptcy is intended to help people get back on their feed when they’ve lost control of their finances. To help do this, the government put a set of bankruptcy exemptions in place that allow bankruptcy filers to maintain their quality of life while resolving their debt. Any property that qualifies as “exempt” according to the bankruptcy exemptions is not included in the bankruptcy estate. Property that is not exempt becomes part of the bankruptcy estate. The bankruptcy trustee can sell it and divide the profit among the filer’s unsecured creditors.
Protecting Property with Bankruptcy Exemptions:
Most Chapter 7 bankruptcy exemptions have a limit, so anyone filing bankruptcy can protect certain types of property up to a capped amount. If the asset a debtor hopes to protect is valued at an amount above the stated exemption max, the asset would become part of the estate. When the bankruptcy trustee sells the asset, the exempt amount of the proceeds from the asset are returned to the debtor, and the remaining amount (above the exempt max) is divided amongst creditors.
Federal or State Bankruptcy Exemptions: Which Set Applies?
Some states allow bankruptcy filers to choose whether they want to use federal bankruptcy exemptions or state bankruptcy exemptions. However, Tennessee and Georgia do not offer this option. When filing bankruptcy in Tennessee or Georgia, bankruptcy exemptions are determined by state law, not the federal bankruptcy exemptions. (One exception is that Georgia and Tennessee filers can use the federal nonbankruptcy exemptions to protect specific disability benefits and retirement accounts). If you are filing bankruptcy in Tennessee or Georgia, make sure to discuss state exemptions and how they apply to your estate with an experienced local bankruptcy attorney.
How to Determine Which State Exemptions Apply:
The state you file bankruptcy in is typically determined by the state you have resided in for the past two years before the filing. If the state of residence was not constant for the two year period preceding bankruptcy, the place of “residence” of the bankruptcy filer may revert to the previous state of residence. Discuss the situation with a bankruptcy specialist to ensure you base your expectations for the bankruptcy on the correct state’s bankruptcy exemptions.
If you need to file Chapter 7 bankruptcy and are worried that you don’t understand how to maximize your bankruptcy exemptions, discuss your options with an experienced bankruptcy attorney. Don’t hesitate to call Kenneth C. Rannick P.C., Tennessee, and Georgia bankruptcy attorney. We help good people through bad times.