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Role of bankruptcy exemptions in Chapter 13 filings

Blog readers have no doubt noticed that not only are there several forms of bankruptcy, but that each kind serves different goals. These differing goals translate into different rules and outcomes for each form of bankruptcy. For example, filing for Chapter 7 bankruptcy, also known as liquidation bankruptcy, is a fast process that involves selling off a Tennessean's assets in exchange for a clean slate. Meanwhile, Chapter 13 bankruptcy is slower and permits debtors to reorganize their debt and keep essential assets.

One difference between Chapter 7 and Chapter 13 is how they handle property. Under Chapter 7, any property that is not exempt must be given to the bankruptcy estate, which typically sells the property to repay creditors. Under Chapter 13, by contrast, debtors can hold on to much more of their property.

What are the types of exempt property? It depends. Federal exempts certain property; states exempt other property. These laws also often set ceilings on the value of exempt property. As a result, Tennesseans will want to do some research on the rules in each state where they have property.

That said, there are common types of exempt property. For instance, vehicles, jewelry, family homes, household items and furniture and certain personal items like clothes. But these are just a start. Federal and Tennessee law provide exemptions for other property as well.

Given the complexity of bankruptcy and the benefits from exempting as much property as possible, Tennesseans considering bankruptcy may benefit from discussing whether bankruptcy is the right choice and, if so, what to do with an experienced bankruptcy attorney. That discussion could be the first step toward a fresh start.

Source: FindLaw, "Exempt Property in a Chapter 13 Bankruptcy," Accessed on Aug. 11, 2015

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