When you file for bankruptcy, one of the most important parts of the process involves the division and sale of assets. Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy” as it involves selling property and assets to pay off as much debt to creditors as possible before eliminating the remaining debt. During this process, there are both exempt and non-exempt assets. Understanding the difference between these two types of assets is important for anyone attempting to navigate bankruptcy. Continue reading and consult with an experienced Bergen County Chapter 7 bankruptcy lawyer to schedule your free consultation today.
What Are Exempt Assets?
Exempt assets are any assets or property that you are allowed to keep after filing for bankruptcy. These assets are protected from the liquidation process and seizure meaning that the debtor does not have to use them to pay off creditors and is allowed to retain ownership of the assets.
The point of exempt assets is to allow the debtor to retain the basic necessities of their life like property and assets that are required to live and work to ensure a fresh start and opportunity for them to get back on their feet after bankruptcy.
Examples of property that may be considered exempt include the following and more.
- Motor vehicles, up to a certain value
- Reasonable clothing
- Reasonable household furnishings, appliances, and other goods
- Alimony
- Child support
- Retirement accounts
- Life insurance policy
- Pension
- A portion of equity in the home
- Tools of the debtor’s trade, up to a certain value
- Jewelry, up to a certain value
- Public benefits or assistance
- Damages awarded for personal injuries
What Are Non-Exempt Assets?
Non-exempt assets are all other assets that do not qualify for protection under bankruptcy exemption rules. These assets can be liquidated or sold to pay creditors. In general, any asset that doesn’t fall under the exemptions listed above, or outlined on the United States Courts site, may be considered non-exempt and used to pay back debts. Examples of non-exempt assets include the following.
- Real estate besides the primary residence
- Cash and bank accounts
- Investments and bonds
- Luxury or valuable items like jewelry, artwork, collectibles, etc.
- Second vehicles
- Family heirlooms, if they are of significant value
How Do These Assets Affect Bankruptcy?
How each asset is classified has a significant impact on the outcome of bankruptcy and can influence the debtor’s decision regarding how to file for bankruptcy. In liquidation (Chapter 7), the debtor’s assets are evaluated and liquidated to pay off creditors, after which the individual is generally discharged from most of their remaining debt.
In Chapter 13 bankruptcy, however, the debtor may be able to retain most of their assets but are required to repay a portion of their debts through a repayment plan, often based on income and assets. If the debtor’s assets are mostly nonexempt, they may choose to file for Chapter 13 bankruptcy to avoid liquidation.
Bankruptcy law can be complex so it is important to be adequately represented. Reach out to a skilled attorney at the Law Office of Boyd & Squitieri today to set up a consultation and discuss your situation.
