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What are exemptions in a Chapter 7 bankruptcy?

Under bankruptcy laws, the reason why individuals and couples find themselves in dire financial straits isn't the most critical component to a case. From a personal standpoint, it may be very important. The stress of not being able to find a job, being responsible for huge medical bills or disability wreaking havoc on wage-earning options can be overwhelming. Bankruptcy laws are in place to help people survive by giving them a fresh start, out from under that stress.

An added relief might be the realization that filing bankruptcy doesn't always mean losing everything you own. The laws allow for some property and funds to be retained by a debtor under certain conditions. These are called exemptions. Exempt property doesn't have to be turned over to the assigned bankruptcy trustee for sale to satisfy creditors.

Federal law provides some exempt property criteria. The bankruptcy petition has a schedule on which the property a debtor is claiming as exempt is described. Arizona, however, requires its residents to use state law exemptions instead. A knowledgeable legal representative will be able to determine what exemptions will apply in a particular case. It should be noted that a resident wishing to use exemptions allowed by our state must have been a resident for the two years prior to filing bankruptcy.

A critical exemption for many debtors is the home in which they live. Arizona allows real property up to $150,000 in value to be exempt. Another example is personal property such as furniture, appliances and electronics – items not individually defined in the schedule. For this type of property, the maximum exemption value is $6,000 total, based on the fair market value of the items at the time of filing. It doubles for spouses filing jointly. Delineated exemptions with maximum values specified include, among many others, life insurance, wedding and engagement rings, child support, one computer, retirement benefits and vehicle equity.

Bankruptcy laws, both state and federal, offer benefits and protections designed to help people in need. Careful assessment and valuation of all property that may qualify as exempt is a very important step in the process.

Source: United States Bankruptcy Court for the District of Arizona, "Exemptions," accessed June 10, 2015

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  • MCBA | Maricopa County Bar Association
  • State Bar of Arizona
  • ABA | American bar Association | Defending Liberty Pursuing Justice
  • Oregon State bar
  • NACBA | National Association of Consumer Bankruptcy Attorneys
  • NACA | National Association of Consumer Advocates
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