Are you worried about losing your home or other property during a bankruptcy? When a person files for bankruptcy, they are often able to protection certain types of assets – these are known as bankruptcy exemptions, and they can help you protect your property and keep your home safe.
Bankruptcy Exemptions and How They Can Save Property
Bankruptcy exemptions do not cover every type of property: They are designed to specifically protect property that the borrower needs, such as a home that shelters the borrower’s family. Note that there is a set of federal and state exemptions. The state exemptions naturally vary between states, and will affect the limit of your exemptions.
A bankruptcy, particular the more stringent Chapter 7 bankruptcy, is focused on selling assets to pay off creditors, which generally makes it more difficult to hold onto property. This makes exemptions very important: You need to exempt specific properties as early as possible to avoid having them liquidated. Typically, this is all about equity – you are allowed to keep a certain amount of equity, or property value, when filing for bankruptcy. The federal exemption for property, called the homestead exemption, is currently at $23,675 of equity in your principal place of residence for a single debtor – if you jointly file for bankruptcy, this amount doubles.
States set their own homestead exemptions, which are added onto this amount. States exemptions tend to be a bit more strict when qualifying: Typically, you must have bought your home at least 40 months prior to the bankruptcy in order for it to count – otherwise, your exemption amount is automatically limited to around $160,000. The exemption is also limited if you have committed a bankruptcy crime or related crime.
There’s also a type of exemption called the “wildcard” exemption that can be used for any asset that you decide on. If you add the federal, state, and wildcard exemptions together, it is typically a large enough exemption to protect your home, and possibly other property as well.
As you can imagine, charting your equity and adding up qualifying exemptions can become complicated, which is why an experienced bankruptcy attorney can be so useful during this process: For more information, contact Clark & Washington and schedule a free consultation.