Sometimes individuals experience hardships in their lives that create financial worries. In such cases, utilizing the bankruptcy process can help them gain a fresh start.
If you or a loved one is considering undergoing the bankruptcy process, it is important to understand how it works and how it will affect you overall. Exemptions may have a strong impact on your bankruptcy as a whole. By understanding a few key things about exemptions, you may properly position yourself to gain from the bankruptcy process.
In short, the bankruptcy process entails reducing and eliminating certain debts. The federal bankruptcy code fully details the various aspects of this process. The type of bankruptcy determines exactly which debts to eliminate and the method of how to eliminate them. In certain cases, such as a Chapter 7 bankruptcy, debtors must relinquish property to the trustee for sale, and the proceeds help to eliminate some of the debts. Debtors do not have to relinquish exempt property, but they most likely do have to offer non-exempt property. It is important to be able to decipher between the two.
Most commonly, exempt property includes items and assets that individuals need for daily living. Some common exempt property includes:
- Necessary clothing
- Necessary household goods, appliances, and furnishings
- Tools of a debtor's trade
- Motor vehicles
- Public assistance benefits
The courts allot these exemptions according to what they deem as reasonably necessary. Along with these types of property, some monetary designations, such as pensions and unpaid wages, may also receive exemption.
Items that are not necessary to daily living are usually non-exempt from bankruptcy. Common non-exempt assets are:
- Secondary vehicles or homes
- Family heirlooms
- Expensive instruments or collections
- Bank accounts, investments, stocks, and bonds
In most cases, debtors must relinquish these items for liquidation and payment of debt. Not providing such property may negatively affect a debtor's bankruptcy process.
As you can see, bankruptcy is a serious matter. Make sure you fully understand what you may face so you make the best decision for your situation.