Key facts about bankruptcy exemptions

Financial hardships can be difficult to handle. To aid in the process, some people choose to undergo bankruptcy for a new start.

One of the critical aspects of bankruptcy is exemptions. Just because you need assistance with eliminating debt does not mean you should have to give up everything you own. Bankruptcy laws have provisions allowing for people to keep certain items, which may be exempted out of the bankruptcy estate. There are a few key facts to understand about them.

Exemptions vary from state to state

Each state has its own rules regarding exempt property. There is a federal listing of exemptions as well as a state system of exemptions. Some states only allow people to use the state system of exemptions. Others, like Minnesota, allow people to choose between federal or state exemptions. The exemption system you choose will most likely depend on what kind of property you have.

It is always advisable to talk to a bankruptcy attorney about what system is right for you.

Commonly Available Exemptions

There are certain assets that are commonly exempt. These are usually items for daily living, such as the following:

  • Equity in a home (the amount of equity protected will depend on which exemption system you use)
  • Household goods and furnishings such as beds, couches, tables, etc.
  • Clothing
  • Public assistance benefits
  • Primary motor vehicles
  • Retirement benefits
  • Work tools

There are limits to the value of items with all of these exemptions, but they are very generous. Anyone concerned about whether their property would be exempt should talk with a bankruptcy attorney. You should never attempt to eliminate or move property on your own as you may damage your case.


People often worry about property that may not be covered by exemptions.

Those items that the court does not designate as necessary for daily life usually fall under non-exemption. This includes recreational vehicles, vacation or additional homes, valuable collections, and monetary investments stocks, bonds and investments.

People cannot get around having these items by not listing them on their bankruptcy petition. If the court finds that a filer tries to withhold such items, they could face penalties and they could potentially have their bankruptcy dismissed.

Fortunately, there are often solutions for dealing with non-exempt property. In some instances people may set up a payment plan with the court to cover the value of the non-exempt property or a person may choose to pursue Chapter 13 bankruptcy to cover the non-exempt amount. A bankruptcy attorney can advise you of your options.

These are a few key facts about the bankruptcy process. Take some time to understand the law and review your options so you may make the best choice for your situation.

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