Exemptions in Chapter 7 Bankruptcy
The bankruptcy process is intended to provide debtors with a fresh start. In order to ensure debtors are able to regain their footing after a bankruptcy proceeding, certain pieces of property may not be targeted by creditors. As a result, exempted property does not go through the bankruptcy process and remains available to the debtor after the process is completed.
The most common form of bankruptcy is a Chapter 7. Generally, this type of bankruptcy liquidates an individual’s assets and proceeds are used to pay creditors. Any remaining debt is discharged, and the debtor is allowed to retain certain exempt pieces of property.
The Bankruptcy Code allows exemptions in a chapter 7 petition for:
- Place of residence
- Retirement accounts
- Tools used for work
A $5,000 exemption in the equity of a debtor’s home is available if filing singly, $7,500 if jointly. If a minor child is involved, the exemption increases to $25,000. Most retirement savings, including IRAs and pensions, are exempt from bankruptcy proceedings and can be fully retained by the debtor.
Tools of the trade, or various implements used specifically for work, can be retained. There is a $1900 limit to this exemption. Additionally, Tennessee allows debtors to retain most pieces of personal property, like clothing, books and pictures.
If these exemptions do not cover property that the debtor wishes to retain, Tennessee also provides a wild card exemption. This amount can be applied towards any piece of property, and is particularly helpful if any other exemption does not provide enough to protect an important piece of property – like the family home. It can be split and used with multiple exemptions to protect exposed equity.
Sorting through the details of a Chapter 7 bankruptcy petition can be difficult. If you or a loved one is experiencing financial difficulties, it is wise to seek the counsel of an experienced bankruptcy attorney to better ensure that all your legal rights and remedies are protected.