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The Exemption: Your Best Friend in Bankruptcy

Adam Mack, JD

The purpose of bankruptcy is two-fold: to give creditors a portion of the debtor’s assets and to give the person filing bankruptcy a fresh start.  When people are faced with the reality that bankruptcy is the best option for them, their first thought is often, “What will I lose?”  Some mistakenly think they’ll lose everything, but fortunately, people filing bankruptcy are protected by various exemptions which allow them to keep many of their assets.

What Is an Exemption?

The federal bankruptcy code gives the bankruptcy trustee what is sometimes referred to as “the strong arm powers.” By themselves, these powers basically allow the trustee to seize any non-exempt assets belonging to a person filing bankruptcy.  That fulfills the first part of the purpose of bankruptcy.

The second purpose of bankruptcy, though, is to give people filing bankruptcy a fresh start.  If all of their assets were seized – if they had no car to drive to work, no roof overhead, no clothes to wear, no tools of their trade – that would hardly allow for a fresh start.  Bankruptcy law also includes various “exemptions” which bar the trustee from taking away certain assets.

Which Exemptions Are Available To Me?

The applicable exemptions for any particular debtor varies according to each person’s circumstances.  However, the most common exemptions allow the person filing bankruptcy to keep one car per debtor (up to $20000 of equity per car), you are given an exemption for your clothing, most home furnishings, and $7500 exemption for “tools of the trade” (i.e. assets necessary for your occupation) and even some jewelry, and perhaps most importantly there is a homestead exemption to protect a debtor’s house.  Thanks to these and other exemptions, people filing bankruptcy can usually keep many of the things they use day by day.

The only sure way to know which assets you’ll be able to keep is to talk to an attorney.  He or she can guide you through the complex federal and state laws that govern exemptions.


These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!