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If Tennesseans file for bankruptcy, do they give up everything?

When many Tennesseans hear the word, "bankruptcy," their imaginations conjure up images of selling-off everything they own. Tennesseans commonly envision having to give up their car, clothes and even their home. But, is that truth? Does filing for bankruptcy require a person to trade-in all of their earthly possessions in exchange for a fresh start?

In a word, "No." Bankruptcy law is riddled with exemptions that allow people filing for bankruptcy to retain certain possessions. Thanks to these exemptions, people do not need to start from scratch after they file for bankruptcy, even when they file for Chapter 7 bankruptcy, (known as liquidation bankruptcy because it involves people selling off their property and then using the proceeds to pay down their debts).

What exemptions are available in a Chapter 7 bankruptcy? A key exemption is the homestead exemption. Bankruptcy law allows filers to protect their home -- up to a point. For example, the federal homestead exemption is capped at roughly $20,000.

Another exemption is for vehicles. Bankruptcy generally provides some protections, but as with the homestead exemption, the vehicle exemption has a low upper bound: less than $4,000.

There is also a wildcard exemption. This exemption, as the name suggests, is a bit of a catchall for property falling outside the usual categories or exceeding the financial caps mentioned above. But, the exemption is not always available and, like its fellow exemptions, is limited.

As this post shows, bankruptcy law has many twists and turns. Understanding when to twist and when to turn can be important to maximizing the process. As a result, Tennesseans considering whether a Chapter 7 bankruptcy is right for them may benefit from discussing their situation with an experienced bankruptcy attorney.

Source: FindLaw.com, "Bankruptcy Exemptions: Chapter 7," accessed on Oct. 27, 2015

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

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