You can view other related articles at www.jafarlaw.com. Any information contained within is not to be construed as legal advice, for any specific problems, please consult an attorney. If you have any questions relating to this article please feel free to email me at [email protected]

What is an Exemption and what does it mean for me?

As we’ve stated in previous articles, bankruptcy is not a punishment, but a safety net. Its primary purpose is to assist those who have fallen behind on debt or suffered some sort of financial ailment. In order to improve one’s financial health, a debtor has the option of filing for protection under the Bankruptcy Code. But what happens to the assets he owns?
Debtors often shy away from bankruptcy out of fear of losing their homes, cars, pension plans, or anything else of value. In order to maintain the spirit of the Bankruptcy Code and to provide debtors with the fresh start that legislature intended, Congress has provided debtors with “exemptions”.
Exemptions are allowances granted in the Code in order to protect or exclude certain property from the bankruptcy estate. Exclusion from the estate prohibits creditors from access to that property. This is crucial in a Chapter 7 since we are essentially liquidating the entirety of the Debtor’s assets. Debtors filing jointly are allowed twice the amount of exemption, one for each debtor. The federal exemptions differ from state exemptions, so be sure to discuss with your attorney what works in your better interest.
You can find these exemptions in Section 522(d) of the bankruptcy code if you would like to see how much exactly you might be entitled to.

How does an exemption work?

An exemption works to protect your equity. So, for example, each person is allotted $20,200.00 of exemption for real property. Now, if the debtor has a house worth $80,200.00, this means he is allowed to exempt $20,200.00 without any questions asked. Now what about the remaining $60,000.00? Well, most people do not own their homes outright. Let’s assume our debtor has a mortgage on his home in the amount of $60,000.00; we have just successfully protected the entirety of our debtor’s home from the creditors’ reach.
This may raise many questions for you, such as, What if I don’t have a mortgage? or What if, after calculating my mortgage and the exemption, I still have exposed equity in my home? These are all logical and legitimate questions that can be answered by your attorney when you meet. Each case differs from the next, which is why it is never a good idea to try to apply general advice to your specific case.
Now that you understand what an exemption is and how it can be used to help you, it’s time to figure out what strategy you want to use in order to maximize the benefits you receive from filing your bankruptcy petition. This is something you want to discuss with your attorney.

Visit us on the web at www.jafarlaw.com