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What are “exemptions” in a Bankruptcy Case?

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In a bankruptcy case, there are several big pieces to the case.  One of those pieces are what we call “non-exempt assets of the estate”.  Those non-exempt assets are what can be sold in the bankruptcy process to pay your creditors what you owe them.  But, only the “non-exempt” assets are potentially at risk of being lost.

So, what are “non-exempt assets”?

“Asset” is just a bankruptcy word that refers to your property.  And I mean all of it.  Not just what you think has value.  It would include your socks, your comic book collection, your fish bowl, your clothes, your car, your bank account, your business – everything you own.

Congress recognizes that no one can get a fresh start if we take every single thing they own, and sell it to pay creditors.  So, they made a list of property that you will always be able to keep, and the bankruptcy case won’t sell them to pay creditors.  That list contains what is called “exempt assets”.

In California, we have two lists that we can use.  One list is designed to protect equity in real estate; the other list is designed to protect everything else for most people.  In both lists, we can exempt virtually all of your household goods and accessories (furniture, dishes, cat bowl, etc.).  Likewise, we can exempt virtually all of your personal clothing.  In both cases, there are rare exeptions, but we rarely see them.

There are also allowances for other items, such as equity in cars, jewelry, work tools, and retirement accounts.  Don’t worry too much about the retirement accounts—we can usually exempt up to a million dollars without too much trouble.

One of the things that one of our attorneys will do when evaluating your case is to see what property you own that would be at risk in a bankruptcy case.   Don’t be surprised if you find out that nothing is at risk.  But, don’t assume that’s the case without having it reviewed.  Filing a bankruptcy case with “exposed” assets would be a surprise you wouldn’t want to experience.

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