Exemptions play a large role in what property you get to keep in a Chapter 7 bankruptcy. It pays to do some research and planning before you file for bankruptcy, so you can maximize your exemptions. Make a list of your property, determine which set of exemptions you can use, and then figure out the best way to use the available exemptions so you can keep valuable property. Here's how.
Make a List of Your Property
The first step is to itemize all your property that will become part of the bankruptcy estate. This includes real estate and all personal property. Start with the big items like a primary residence, rental and vacation properties, cars and trucks, and readily available liquid assets like cash, stocks, and bonds.
Then list all household items including furniture, TV's and other electronics, appliances, clothing and anything else that may be perceived by the trustee to have any value.
Sort Your List by Importance
Once you've got a list of all your real and personal property, list the items in order of importance. For many people, their house and cars will be at the top of the list. But you might also include a family heirloom, or a piece of property that is important to your home business, for example.
Find Out What Exemptions Are Available to You
Each state has a list of exemptions. Some states allow you to choose between the state exemptions or a list of federal bankruptcy exemptions. If you use your state exemptions, you can also use another list of federal nonbankruptcy exemptions.
To learn which exemption schemes you may use, and to find your state exemptions or the federal bankruptcy and nonbankruptcy exemptions, go to our Bankruptcy Exemptions topic area.
Match Your Property List to the Available Exemptions
If your state law allows you to choose the federal bankruptcy exemptions, include two columns next to your list of property: one for the state exemption values and one for the federal values.
Against each item in your list, figure out if there is a specific exemption protecting it, and if so, what the amount is. Or determine if a general exemption, like "household furnishings," would cover it. Also, find out if your state has an available wildcard exemption to cover items not protected by specific or general exemptions. Some states, and the federal bankruptcy exemptions, allow you to use a portion of any unused homestead exemption to exempt other property.
This is where your planning comes in. Figure out how to best use wildcard exemptions so that you can keep the property you need. Similarly, if your exemptions allow you to protect up to a certain value for household items, for example, you can determine which items to protect. Play around with the numbers to maximize your exemptions. If you have a choice between state or federal exemptions, see which scheme protects more of your important property. Keep in mind that you want to focus on protecting the items at the top of your list first.
To learn more about what happens to your property in bankruptcy, check out the following articles: