Chapter 7 bankruptcy exemptions – getting it all under the umbrella

Understanding Chapter 7 bankruptcy exemptions is crucial for anyone considering bankruptcy.  A chapter 7 bankruptcy is based on a simple agreement with the bankruptcy court: surrender your property and you will receive a complete discharge forever for most debts, including credit card debt, mortgage debt, car loans, personal loans, medical bills and most other forms of  debt.   People considering bankruptcy ask, does this mean all my property? Will I be destitute, homeless and without any possessions?  The answer is absolutely not!   Even in bankruptcy, individuals and families are entitled to keep a certain amount of property.  This is known as exempt property, and Chapter 7 bankruptcy exemptions define what you get to keep.  What a person filing chapter 7 bankruptcy gets to keep is defined by the law of exemptions, which is different  in every state.

Think of chapter 7 bankruptcy exemptions like an umbrella.  You get to keep what ever you can get under the umbrella – the rest must be surrendered to the bankruptcy trustee.

What  goes under the umbrella?  For those who file bankruptcy in Florida, here are some of the chapter 7 bankruptcy exemptions: the owner of a home can claim unlimited equity in a homestead, which is the property where a person or family lives.  If you do not own a home, or if the value of that home is less than the mortgage debt (“underwater”), Florida law provides for a “wildcard” exemption that allows you to keep  $4000.00 of property of any kind.  In addition that amount, you can apply a $1,000.00 exemption to all personal property.  Personal property is anything you own that is not real estate: clothes, furniture, electronics, cash in the bank, stocks, etc.

Each person in a marriage can claim these exeptions, so the amounts are doubled for a married couple.

Chapter 7 bankruptcy exemptions also apply to automobiles:  $1,000.00 for one automobile that is owned by the debtor. This is a very meager allowance, and for that reason, keeping one or more automobiles through a chapter 7 bankruptcy in Florida can be a challenge, but it is possible and is done every day in the bankruptcy court.

These are the chapter 7 bankruptcy exemptions that apply to most people who file bankruptcy in Florida, but there are others that may or may not apply, depending on your situation.   Cash in qualified retirement or education accounts, such as 401(k), IRA’s and 529 accounts are completely exempt.  So is the cash value of a whole life policy or an annuity.  Wages earned by the head of a household are also 100% exempt.  Refunds from the IRS for earned income credit are exempt.  There are many exemptions provided by law and an experienced and knowledgeable bankruptcy attorney can help you exempt as much property as possible under the law.   As a consumer bankruptcy attorney helping people getting a discharge from their debts in chapter 7 bankruptcy, I try to get as much of their property as possible “under the umbrella.”   What happens when you can’t get everything under the umbrella? I will discuss that question in another post.

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