Bankruptcy exemptions are probably the most important part of the bankruptcy system for consumers. The exemptions protect the assets that you need to move forward with your life and to finally get the fresh start you deserve.
Receiving a discharge from the bankruptcy court that wipes out a lot of debt is great! There’s no question about it. However, that discharge would not be nearly as valuable if it meant the Trustee can take everything. Thankfully, Section 522 of the Bankruptcy Code allows the debtor to exempt certain property from the estate. That means you get to keep those specified items and still get your discharge — GOD BLESS AMERICA! Simply put, exemptions are assets that people get to keep when they file for bankruptcy.
With great exemptions comes great power
As an experienced bankruptcy attorney, Matt McCune recognizes the immense amount of value and power that comes with having the right to exemptions. This area of law is one of the last remaining social safety nets in our country. The exemptions are what allow our bankruptcy system to actually provide relief to people seeking refuge from big business.
Bankruptcy is Federal Law and according to the U.S. Constitution, this law is supposed to be uniform i.e. applied the same throughout the country. For this reason, the Bankruptcy Code has its own set of exemptions, which are really just a list of which assets are protected and up to how much in value.
However, something happened in 1978 when Congress was trying to pass the modern Bankruptcy Code law — there was a last minute compromise added to the law that allowed states to “opt out” of the federal exemptions. This meant states could choose to prohibit the use of the federal exemptions spelled out in the bankruptcy code and use their own exemptions. As a result, which set of exemptions apply to a bankruptcy case is dependent upon where you file your case.
The great “opt out” debate
A grand total of 32 states have elected to “opt out” and utilize their own list of exemptions. In the states where you can’t use the federal exemptions, you must adhere to the applicable state exemptions. Usually, the state exemptions are better than the federal exemptions. Especially in the case of the homestead exemption, which is a legal provision that helps shield a home from some creditors following the death of a homeowner’s spouse or the declaration of bankruptcy.
Back to the state versus federal exemptions topic of discussion. Colorado is one of the states that has chosen to opt out, so only state exemptions are used here. But wait, there’s more! Just to make things a little more complicated, it matters if you’ve lived in multiple states during the two years prior to your filing for bankruptcy. It can make things very confusing in terms of which state exemption laws can be applied to your case. Thankfully, the knowledgeable team at McCune Legal can help you navigate the bankruptcy terrain.
Protecting what matters most
So let’s get into what specific property is protected. Now remember, the policy behind the exemption laws is to protect property that is necessary to help a debtor move forward with life i.e. exemptions for personal property. The good news is that, more often than not, many types of personal property are exempt from becoming part of the bankruptcy estate. Some examples include clothing, jewelry, home furnishings, appliances, and much more. It is extremely rare that your boat, airplane, RV or jetski is considered necessary to your fresh start. These luxury items will typically be lost in a chapter 7 bankruptcy case. Remember you can always protect these more extravagant possessions by filing for chapter 13 bankruptcy if you are absolutely committed to keeping them.
If you’re looking for a more detailed summary of the federal exemptions and in which states those exemptions apply, that is a much longer conversation and one that the team at McCune Legal would be happy to have with you at any time.