Whenever a Chapter 7 bankruptcy attorney files a petition on behalf of a client, it's normal for them to ask the court for exemptions. An exempt asset is something like a piece of property or an account that the court won't seize or sell to compensate a filer's creditors. It is important to understand what exemptions are and how they might factor into your filing.

Exempt vs. Non-Exempt

Courts don't want to render people destitute. Consequently, there is a process for ensuring that people who complete bankruptcy have basic things. For example, you can usually obtain an exemption for your clothes as long as they're not luxury items.

At the same time, the court has a duty to pay the creditors as much of what's owed as possible. The judge will appoint a trustee to determine if something is worth selling. Anything that the trustee can sell is considered non-exempt. If someone has a sports car or a vacation home, for example, the trustee will almost certainly sell those.

State Exemptions

U.S. states must allow exemptions within the federal guidelines, but they can also allow exemptions that go beyond them. For example, numerous states use flat values for the combination of a person's assets, cash, and accounts. If the sum value of everything you own falls below your state's limit, you can usually seek an exemption for all of it.

Before you consider requesting an exemption based on state laws, make sure you consult with a Chapter 7 bankruptcy lawyer who's licensed in your state. They can tell you what the specific rules are where you live.

Secured Debts

A secured debt is a physical asset attached to a loan. Mortgages are classic secured debts, as are car loans.

Notably, all secured debts fall outside of the Chapter 7 process. If you have a mortgage on your primary residence, for example, the bank can foreclose on it even if you file for Chapter 7. The court may impose a brief stay on the foreclosure process, but this won't last past the final judgment in the case.

Filing for Exemptions

The court never grants exemptions automatically, even if something is obviously exempt. One of the main reasons to hire a Chapter 7 bankruptcy attorney is to ensure that your list of requested exemptions will be complete. You should document every exempt asset as thoroughly as possible with titles and other paperwork. Serial numbers and other identifying marks are also useful. A Chapter 7 bankruptcy attorney can include this information in the petition for the sake of thoroughness.