What property is exempt in bankruptcy?
In Chapter 7 bankruptcy, the trustee liquidates the debtor’s assets
for the benefit of the debtor’s creditors. However, an individual
can keep certain property for the debtor to gain a fresh start. Whether
property is exempt or non-exempt is important to both the debtor and the
creditors. Exemptions were originally a matter of state law. Each state
defined its exempt property. Congress then decided the states could use
a federal list of exemptions. Some states required the debtor to use the
state list of exemptions, others offered residents the option to choose
the federal list of exemptions or the state’s – depending
upon which would be more advantageous to the resident. Before you file
bankruptcy, you may convert non-exempt property into exempt property,
or sell non-exempt property and use the proceeds to pay debts that wouldn’t
be dischargeable in bankruptcy, such as alimony or non-dischargeable taxes
and student loans. These planning considerations are important. If you
have significant assets, you must plan well ahead for bankruptcy.