In basic terms, bankruptcy exemptions are the things you get to keep when filing for bankruptcy. Certain exemptions are allowed under federal law, and certain ones are allowed under your individual state law. Still, each case is decided on a case-by-case basis depending on individual circumstances.
This article will address exemptions on the federal level.
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Function
Filing bankruptcy is applicable in situations in which an individual is unable to pay on debts accrued. This can be a result of job loss, disability status or financial duress caused by an unanticipated crisis. Individuals can find relief from personal liability claims only. Certain debts such as taxes, student loans and child support are not exempted under federal or state bankruptcy law.
History of
Bankruptcy is deemed a personal liberty, first ordained within the United States Constitution in 1801. As of 1978, Congress instituted the Bankruptcy Reform Act in which specific bankruptcy codes were delineated. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act to prevent citizens from abusing this bankruptcy provision.
Type
There are three main types of bankruptcy under which an individual or municipality can file. One is Chapter 7, which is total liquidation of assets. However, bankruptcy exemption allowances permit individuals to keep their assets. A second is Chapter 9, wherein municipalities can file to reorganize, rather than liquidate, their acquired debt. The third is Chapter 11, 12, and 13. They apply to individuals seeking to retain their property and still pay off acquired debts according to an agreed timetable.
Under federal law, exemptions can be made in the areas of property; automobiles; belongings; jewelry; career-related items such as books and tools; life insurance policies; health aids; and government benefit earnings and stock earnings.
Benefits
The benefit in bankruptcy exemptions, and in filing bankruptcy in general, is that an automatic stay is placed on your property and assets the moment a bankruptcy petition is filed. This stay prevents creditors from taking any further action toward recouping monies owed. Creditors that violate an automatic stay can be charged for damages against your property and assets.
Misconceptions
Not all states allow individuals the option of using federal exemption allowances. Be sure to check your state's laws regarding this. Here are the states and areas that do allow for federal bankruptcy exemptions: Arkansas, Connecticut, District of Columbia, Hawaii, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont, Washington and Wisconsin.
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