Bankruptcy Exemptions: WHAT PROPERTY IS EXEMPT?

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Property exemptions vary from state to state. In general, the debtor may keep a portion of the value of the debtor’s residence, and debtors who do not own a home may keep a personal property allowance. Debtors may also keep a portion of the value of insurance policies, immediate personal possessions, clothes, kitchen utensils, a limited amount of furniture, and sufficient provisions to support their family for six months. Also, debtors can sometimes keep property upon which a creditor has a lien, by reaffirming the debt and making new arrangements to pay it off. These reaffirmation agreements must either be certified by the debtor’s attorney as being in the debtor’s best interest or approved by the court.

WHAT IS THE EFFECT OF A CHAPTER 7 BANKRUPTCY?

After the petition is filed, the court appoints a trustee. Creditors are notified and the court schedules a meeting between the debtor and creditors. Creditors must file their claims within 90 days of this meeting or they will be unable to obtain a share of the debtor’s assets. The trustee sells any of the debtor’s property that exceeds the debtor’s exemptions and distributes the proceeds to the creditors.

WHAT HAPPENS WHEN A CHAPTER 13 PETITION IS FILED?

The court refers the petition to a trustee, who schedules a meeting for all creditors. The debtor must attend and may be questioned under oath about financial matters. The plan is submitted to the court and the creditors for approval. The bankruptcy court may approve the plan over the objection of the creditors in some cases. The court may also convert the case to a "straight" bankruptcy under Chapter 7. If the plan is approved, the debtor’s monthly disposable income is paid to the trustee for distribution to the creditors. Disposable income is that which is not reasonably necessary for the maintenance and support of the debtor and his family. The plan must pay creditors holding liens on the debtor’s property at least the fair market value of the security. Other creditors must be paid at least the amount of money they would receive if the petition were filed under Chapter 7.

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