Bankruptcy is a legal process that provides financial relief for individuals and businesses who are overwhelmed with debt. One of the most important parts of bankruptcy law for debtors to understand is exemptions. To find out more about what an exemption is and how you can benefit from it, continue reading and speak with a Bergen County bankruptcy lawyer today.
What is an Exemption in Bankruptcy?
When an individual files for bankruptcy, all of their property becomes part of what is known as a bankruptcy estate. This includes all of the debtor’s legal, tangible, and intangible assets, like bank accounts, personal belongings, vehicles, real estate, and other assets. The bankruptcy estate becomes the owner of the property in a similar way that a trust owns a grantor’s assets.
While much of a debtor’s assets are required to be forfeited to pay back debts, the law does not require that all assets be given up. In bankruptcy, exemptions determine what property you are allowed to keep, even while your debts are being repaid.
Certain property is protected by being classified as “exempt,” meaning that it does not have to be sold or liquidated to pay back debts. The purpose of exemptions is to allow individuals to maintain their basic standard of living during and after the bankruptcy process. Taking away every asset from a debtor would leave them destitute and unable to make a fresh start, which is the point of bankruptcy law.
How Do Exemptions Work?
The assets that are considered exempt will vary depending on the jurisdiction you are in and how you have filed for bankruptcy. Chapter 7 and 13 rules vary significantly, for example. In Chapter 13, debtors generally retain property but pay creditors back through a payment plan, whereas in Chapter 7, a debtor’s assets are typically sold to pay back debts.
Each state also has unique exemption laws, though debtors can often use federal regulations instead. Below are some examples of bankruptcy exemptions.
- Homestead: Contrary to many states, New Jersey does not have a homestead exemption, which would allow the debtor to maintain their primary residence. However, NJ debtors can use the federal exemption to retain their home.
- Personal property: Certain clothing, household goods up to a certain amount, income, etc., can be exempt
- Vehicle: NJ law also does not offer a specific motor vehicle exemption, but a certain value of personal property can apply to a vehicle exemption, or the federal regulation can be used
- Retirement benefits: Public employees’ pensions can be considered exempt
- Cemeteries: Cemetery property and burial funds are generally exempt
- Legal compensation: Money gained from a criminal or personal injury claim is exempt
- Business tools: Business-related tools, stocks, partnerships, etc., are often exempt
There are several other types of exemptions that may or may not apply depending on the details of your situation. To learn more, set up a free consultation with a skilled attorney at the Law Office of Boyd & Squitieri today.