People often worry that they’ll lose all their property when they file for Chapter 7 bankruptcy. Contrary to popular belief, however, filing for bankruptcy doesn’t mean you have to give up all your assets. The bankruptcy laws specifically designate certain types of property as off-limits to creditors. These assets are collectively known as “exempt property.” Below is an overview of Chapter 7 bankruptcy exemptions.
Claiming Exemptions in Chapter 7 Bankruptcy
When a debtor files for bankruptcy, he or she has the option of making claims for exempt assets. If no one objects to these exemptions, the court will certify the assets as exempt property. What this essentially means is that the debtor gets to keep these assets.
Keeping Your Property in Chapter 7 Bankruptcy
As noted above, under the Chapter 7 bankruptcy exemption system, debtors can keep the assets needed for daily living. One purpose of bankruptcy is to give debtors a fresh financial start, and exemptions ensure that debtors have the resources needed to do so.
Federal and State Exemptions
Although there are exemptions in the federal bankruptcy code, each state has the ability to elect to create its own bankruptcy exemptions. In order to use a state’s bankruptcy exemptions, a debtor must have lived there for at least two years prior to filing for bankruptcy.
Liens & Bankruptcy Exemptions
Filing for Chapter 7 bankruptcy won’t automatically remove a lien unless a debtor takes additional steps. The lien in question must qualify for avoidance, and the debtor must file a motion with the court to obtain a court order. In addition, the lien must interfere with a bankruptcy exemption. In other words, if a piece of property is subject to an exemption, then the court will likely remove the lien.
Common Chapter 7 Bankruptcy Exemptions
Common Chapter 7 bankruptcy exemptions include:
- Homestead exemption: A homestead exemption is a provision that shields a debtor’s home from creditors following the death of a spouse or a declaration of bankruptcy.
- Auto exemption: An auto exemption operates similarly to the homestead exemption, but it protects a debtor’s vehicle from creditors.
In addition, the following assets are automatically fully protected in Chapter 7 bankruptcy:
- Child support and alimony payments
- Individual Retirement Accounts
- Social Security benefits
- Veterans benefits
- Disability benefits
- 401(k) plans
- Personal injury awards
Contact Our Experienced Chicago Bankruptcy Attorneys
If you are thinking about filing for bankruptcy in Chicago, you need an experienced Chicago bankruptcy attorney on your side. At Chicago Bankruptcy Clinic, our knowledgeable attorneys will handle all the details of your Chicago bankruptcy filing with professionalism, compassion, and efficiency. When you come to our experienced bankruptcy attorneys for help, you can rest assured that we will do everything we can to ensure your Chicago bankruptcy is a success. Please contact us today to schedule a free consultation with one of our talented bankruptcy attorneys.