Making the decision to file for bankruptcy is not something that should be made lightly. However, many who initiate this process are unfamiliar with what assets are and are not exempt. As such, taking the time to learn about these exemptions is critical to ensuring you understand what to expect during this process. The following blog explores what you should know about exempt and non-exempt assets if you’re considering filing for bankruptcy. You’ll also learn the importance of working with a Memphis, TN Chapter 7 bankruptcy lawyer to guide you through this process.
How Does Bankruptcy Work?
In general, bankruptcy is a process that involves repaying creditors as much as possible before remaining eligible debts are forgiven to help those who are in unmanageable debt receive relief and a fresh start in terms of their finances.
Consumers who file for bankruptcy will typically go one of two routes. The first is Chapter 7, which requires the filer to pass a means test. Essentially, this means that you must prove that you make less than the average annual income for households of your size in Tennessee. If you pass the means test, you can proceed with Chapter 7, which involves the liquidation of your non-exempt assets to pay back creditors. After creditors have been paid back as much as possible, the remaining eligible debt will be forgiven.
The other option for consumers is filing Chapter 13. This is the option for those who do not pass the means test or who are worried about losing non-exempt assets. In Chapter 13, you will work with your trustee to create a repayment plan by reorganizing your debts. This plan will typically last three to five years, depending on your unique circumstances. After you make your last payment, the remaining eligible debt will be forgiven.
What Assets Are Exempt and Non-Exempt?
When you are in Chapter 7, as mentioned, your assets will be liquidated by the trustee assigned to your case to repay your creditors. It’s important to understand what assets are considered exempt from this process and which can be taken to repay debts. Typically, you can choose what assets you retain during this process by utilizing state and federal bankruptcy exemptions. There are many exemptions you can utilize, so discussing your specific options with your attorney is critical. However, familiarizing yourself with some of the options can help make bankruptcy less overwhelming.
The homestead exemption protects up to $5,000 in equity of the filer’s primary residence, but this amount can change based on the spouse’s age or marital status. For example, if you and your spouse are both over the age of 62 and file for bankruptcy, the homestead exemption will increase to $25,000 in equity. Most employee-based retirement accounts are also protected in bankruptcy as per federal law. However, if you have an IRA, you’ll receive protection of up to $1.5 million.
Non-exempt assets include anything you cannot protect through a state or federal exemption. For example, Tennessee does not have a vehicle exemption. If you use the wildcard exemption, which protects up to $10,000 of any asset of your choice, for something else, your trustee can seize your vehicle to pay off creditors.
As you can see, navigating the process of trying to protect assets can be complicated. That’s why it’s imperative to connect with an experienced attorney at the Arnold Law Firm. Our team understands how difficult these issues can be, which is why we are committed to helping you through this process with as much ease as possible. Reach out to us to learn how we can help you navigate bankruptcy.
