Exempt vs. Non-exempt Property Under Chapter 7
In a Chapter 7 liquidation case, the debtor must relinquish certain property to the bankruptcy trustee so that he or she can sell the property and use the proceeds to pay off debts. Property of the bankruptcy estate is broadly defined under Section 541 of the Bankruptcy Code. The estate is technically the legal owner of all of the debtor’s property and consists of all legal and equitable interests that the debtor has in property at the initiation of the bankruptcy case. Income that the debtor earns after the date of the petition is not included in the estate. Debtors, whether they are businesses or individuals, are often justifiably concerned about what property they will be allowed to keep and what they must give up. An experienced bankruptcy lawyer can answer these and other questions, allay fears and keep the process moving forward as painlessly as possible.
A debtor must file a schedule of exempt property with the court. Exempt property is property that the debtor can protect from liquidation. The Bankruptcy Code allows each state to adopt its own exemption laws, which the debtor can select instead of the federal exemptions. It is important to consult with an attorney who can explain the exemptions available under your state’s laws and how they compare to the available federal exemptions.
Items that the debtor usually must forfeit include:
Expensive musical instruments, unless the debtor is a professional musician
Collections of stamps, coins and other valuable items
Cash, bank accounts, stocks, bonds and other investments
A second car or truck
A second home or vacation home
Certain types of property are exempt, meaning that the debtor can keep that property. Exempt property includes:
Motor vehicles, up to a certain value
Reasonably necessary clothing
Reasonably necessary household goods and furnishings
Jewelry, up to a certain value
A portion of the equity in the debtor’s home
Tools of the debtor’s trade or profession, up to a certain value
A portion of unpaid but earned wages
Public benefits, including public assistance (welfare), social security and unemployment compensation, accumulated in a bank account
Damages awarded for personal injury
About the Author
Attorney Steven Peck has been practicing law since 1981. A former successful business owner, Mr. Peck initially focused his legal career on business law. Within the first three years, after some colleagues and friend’s parents endured nursing home neglect and elder abuse, he continued his education to begin practicing elder law and nursing home abuse law.