When you are filing bankruptcy, unavoidably you will encounter the term exemptions. In layman's terms, exemptions are the things you get to keep when you apply for bankruptcy shelter. Other than the federal exemptions when you are filing bankruptcy, many states have their own set of exemptions as well. You have a choice of using the federal or the state's exemptions when you are filing for bankruptcy. By declaring something exempt when you are filing for bankruptcy, you have successfully protected this assets from the creditors.
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You cannot actually apply one set of rule when it comes to exemptions with the bankruptcy because it varies from federal to state, and then state to state. A straight forward illustration of this distinction is the exemption for a car. When filing bankruptcy in Texas, you are allowed $30,000 for the exemption in a car whereas Florida only allows $1,000. Since the exemption rule differs from state to state, the amount that the creditors can gather through the bankruptcy process largely depend on the state that you live in.
Some states also created "wildcard", which is a exceptional exemption that you can apply to any property that you own. An example of a "wildcard" rule is as follow. If you have a car and your state gives you $3,500 in exemption for the car while the blue book value of the car is only worth $1,500. The difference of $2,000 can be use a "wildcard" in some states which essentially lets you use this $2,000 on any other asset you are trying to protect. If you have a extensive model train set, you can label this train set as the "wildcard" exemption and not worry about the bankruptcy judge liquidating it to pay back the creditors.
In 2005 when the Congress amended the bankruptcy law, it prevented people from moving to a state where there is better bankruptcy exemption. In order to take advantage of the state's exemptions, you need to have lived inside the state for 2 years prior to the bankruptcy filing. If you do not qualify for the state's exemption rule because you have not lived there for the past 2 years, you can qualify under another state where you have lived in for more than 180 days in the past 2 years. Your last alternative is to use the federal exemption which is the least desirable of them all.
Given that the exemptions of the bankruptcy law are quite convoluted, as it varies from state to state, you will be better served to seek the advice of a qualified bankruptcy attorney. By using a certified bankruptcy lawyer, you should be able to retain more of your assets when filing bankruptcy and lose less to the creditors. If you want additional information on bankruptcy, please visit our website at http://www.ToFileBankruptcyOrNot.com.
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