The object of filing for Chapter 7 bankruptcy is to protect your assets and buy time to pay off some debts. This is the reason the courts classify some of your property as either exempt or non-exempt. For a good understanding of what property can or cannot be liquidated during a Chapter 7 bankruptcy, consult a bankruptcy attorney. Here is some basic information regarding exempt and non-exempt property.
How Does Exemption Work?
According to bankruptcy law, you are allowed to keep a certain share of your possessions after bankruptcy proceedings. This possession is called exempt property. Possession that is not exempted is called non-exempt property.
There are federal and state exemption laws. Your bankruptcy lawyer will guide you on which laws are appropriate for your situation. Furthermore, they will help you file a schedule of exempt property with the court.
What Is Exempt Versus Non-Exempt Property?
All necessities of life fall under the category of exempt property. These are items that you need for living and working. Bankruptcy law allows you to keep these items so you can get back on your feet and out of debt. Exempt property includes the following:
- Alimony and child support
- Tools of your trade
- Public benefits like social security
- Health aids
- A portion of equity in your home
- Household goods, Furnishings
- Workers compensation
Items you can live and work without fall under the category of non-exempt property. These include the following:
- Prized family heirlooms
- Stocks, bonds, and similar investments
- Cash and bank accounts
- A second home or car
- A collection of coins, stamps, and souvenirs
What Happens If a Creditor Tries to Claim Exempt Property?
When your property is wrongly classified as non-exempt, your creditor may try to claim it. The onus is upon you to prove the property is exempt. In addition, your bankruptcy lawyer will help prove that the creditor has no claim to it.
This scenario often arises when the value of an item cannot be determined. If you are able to prove that the possession is exempt, the court will grant you an injunction. The injunction prevents the creditor from collecting from you. What's more, if the debtor has caused you notable losses, you can claim damages for reimbursements.
Creditors have 30 days to object to the debtor's claims at the 341 meeting. If your creditors fail to raise an objection, the property in question will be officially classified as exempt for 30 days.