When filing bankruptcy, a debtor's assets are itemized by the bankruptcy court to create the "bankruptcy estate".
All property you own when you file bankruptcy, and possibly property acquired shortly after filing, goes into the bankruptcy estate.
Any attempt to sell or give away assets before filing bankruptcy may be seen as bankruptcy fraud by the court, and if discovered can lead to your case being dismissed or even felony criminal charges.
Federal and state laws may allow you to exempt some property, or to keep it from being included as part of the bankruptcy estate.
In a Chapter 7 bankruptcy, some of this property in the bankruptcy estate may be sold to repay unsecured creditors.
In a Chapter 13 bankruptcy, assets are used when calculating the repayment plan to ensure that creditors receive as much as they would in a Chapter 7 bankruptcy. Debtors are typically able to keep all property, whether exempt or not, in a Chapter 13 bankruptcy.
Each state has created its own set of exemptions that replace the exemptions outlined in the U.S. Bankruptcy Code. In 15 states and Washington, D.C., debtors may have the option to choose their state exemptions or federal exemptions.
This is beneficial for debtors whose state exemptions do not offer enough protection for certain types of property.
However, it's important to note that debtors must choose between the full set of federal or state exemptions, and cannot "cherry pick" from both sets.
In some states, married couples filing bankruptcy jointly may double the exemption amounts.
If you have recently moved before filing bankruptcy, you may need to meet certain residency requirements. Bankruptcy law prohibits moving from one state to another simply to qualify for more generous exemptions.
To determine which state's exemptions you must use, you must look back two years from the date you file bankruptcy. From that date, you chose the state in which you lived the majority of the previous 180 days.
However, some states do not allow you to claim exemptions if you have moved out of state. If you fall into this category, you must use federal exemptions.
If you chose to use federal exemptions while living in a state the allows it, you need only to have been a resident for 91 days.
If you're considering filing bankruptcy and want to know how to best protect your property from creditors, you can connect with a bankruptcy attorney in your area. A local lawyer can explain the exemptions in your state, and whether federal exemptions are offered to you.
Connect with a bankruptcy lawyer today. Simply fill out the form below or call 877-349-1309 to speak with an attorney in your area about filing bankruptcy.
The above summary is by no means all-inclusive and is not legal advice. Laws may have changed since our last update. For more information on bankruptcy exemptions, contact a local bankruptcy attorney.