Bankruptcy undoubtedly provides a powerful legal way to wipe out most of your debts and allows you to get the fresh start that you need. Unfortunately, the bankruptcy laws also provide that some of your property, like your home, vehicles and more could be subject to seizure. The amount of property you are allowed to keep depends on something called "exemptions". Read on to learn more about how bankruptcy exemptions allow you to depreciate your property and keep it.
State and Federal Provisions
Even though bankruptcy is governed by federal law, there are some state-specific rules about exemptions and there are federal exemptions as well. Some states actually allow bankruptcy filers to choose whether they want to follow federal exemptions or state exemptions. A careful reading of the rules in your state is vital, since one or the other could mean keeping more property.
The Family Home
Few things cause more anxiety for bankruptcy filers than the possibility of losing their home to bankruptcy. Homestead exemptions, available in all states, allow that a certain dollar amount be deducted from the value of the home. In some states, if you file bankruptcy jointly with your spouse, you can double your homestead exemption. It should be noted that the amount of debt you are declaring in your bankruptcy has a great deal of bearing on whether or not you will lose your home. It is not very likely that a $500,000 home will be seized to pay off a bankruptcy debt of $50,000.
Here is how the homestead exemption works: Your home is worth $500,000 and you still owe $425,000 on your mortgage. Your state allows you to double your marital exemption of $50,000 to deduct $100,000 off the $425,000. Your home is safe from seizure.
The vehicle exemptions work similarly to the homestead exemptions. If you owe more on the car than it is worth, is likely won't be seized. If your auto is paid off, however, it could be in jeopardy if its value exceeds the exemption in your state.
Your Personal Property
Unless you have valuable artwork and jewelry, your personal possessions are not likely to draw the attention of the bankruptcy trustee, who is charged with trying to pay the your creditors as much as possible. Items are valued at their resale value, which is negligible for used furniture and clothing.
A consultation with a bankruptcy attorney to learn more about exemptions is vital, and doing so before you make your decision to file bankruptcy is advisable.