In today’s economy, many Americans are filing bankruptcy as a way to get out of debt while protecting their assets. When Bankruptcy was created, Congress wanted to make sure that the individual filing bankruptcy would get a fresh start. With this in mind, they felt the only way the debtor could truly get a fresh start is if they weren’t wiped out by liquidation. This is where they came up with bankruptcy exemption laws. They wanted to allow the debtors to be able to keep their generous amount of personal property by protecting it with bankruptcy exemption laws. The exemption laws vary from state to state and even the federal government has their own set of bankruptcy exemption laws that an individual could use if they don’t like their state exemptions.
When filing bankruptcy, an individual will have a certain amount of property that they will be able to keep and make it exempt from the bankruptcy estate. If a person filing bankruptcy has more property than the exemption laws protect, the property could be sold and the proceeds divided amongst the creditors. Sometimes, a debtor has something that only part of it would be exempt, they can ask the bankruptcy trustee to pay for the difference to be able to keep the property. This is seen with people that own automobiles out right and have no lien on them. They need their car so they negotiate with the bankruptcy court to be able to keep it. This usually happens in a Chapter 7 bankruptcy, because with a Chapter 13 bankruptcy there is a 3 to 5 year payment plan that allows the debtor to catch up on money owed and keep their property.
While it’s possible to file on your own, because of the complexity of the exemption laws, it’s best to hire a bankruptcy lawyer that will have experience with this topic. There are many regulations that the average person filing bankruptcy wouldn’t know without the help of a bankruptcy lawyer. For example, if a person moved out of state prior to the bankruptcy filing, until they have resided in the new state for two years, they will use the bankruptcy exemption laws of the state they left. This change came with the overhaul to the bankruptcy code in 2005. Congress didn’t want people moving to a state with more generous exemption laws just to file.
Because of all the changes to the bankruptcy code, it’s a good idea to consultant bankruptcy lawyer about one’s financial situation. A bankruptcy lawyer will have experience with the bankruptcy exemption laws for the individual’s state and will know what is expected of the local bankruptcy trustee. While, Chapter 7 bankruptcy is known as a liquidation bankruptcy, rarely does someone filing bankruptcy lose any property. In today’s economy, the bankruptcy trustee will weigh out the cost of recovery versus the return on all property that is nonexempt. In many cases, it takes too much time and effort to recover a few dollars.