People face financial strains for various reasons. In some cases, a Chapter 7 or Chapter 13 bankruptcy can help to provide relief and to get debtors on the track to financial stability.
For those considering the bankruptcy process, it is important to understand the various elements that are a part of it, including exemptions, which may affect whether or not people want to file.
In short, bankruptcy is a process of eliminating debt. The means of accomplishing this task vary, depending upon the type of bankruptcy that parties are eligible for and decide to pursue. In accordance with federal law, the bankruptcy courts liquidate certain assets during the process to aid in eliminating debt. By the same token, there are certain assets that are exempt from the process. It is important to understand what distinguishes the two.
Exempt assets are usually those that people need in order to function in everyday life. Some of the most common types of property that receive exemptions include:
- Primary vehicle
- Necessary clothes and home furnishings
- Tools of a trade
- Public assistance
Along with the items that are naturally exempt, debtors may petition to gain exemption for other assets. A knowledgeable attorney can help in determining these assets and petitioning the courts properly.
Contrary to exempt property, the courts utilize nonexempt property during the bankruptcy process to pay off debt. These items include luxury property and property not essential to everyday life, such as:
- Additional vehicles and homes
- Expensive collections of instruments and other pieces
- Family heirlooms
- Investments, stocks, bonds and bank accounts
The bankruptcy trustee receives these items and oversees their liquidation. The trustee then applies the funds to the debt and, depending upon the plan, the debtor is released from additional debt or sets up a plan to pay back the remaining balance.
This brief overview of bankruptcy exemptions can aid parties in determining the best course of action for their situation. For those with additional questions, it may be beneficial to review the law and consult with a professional.