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Bankruptcy exceptions can protect assets

Bankruptcy can provide a fresh start after incurring insurmountable debt. Chapter 7 exemptions provide bankruptcy protection over a debtor's property while dealing with debt. Chapter 7 bankruptcy is typically a faster and easier process than Chapter 13. Under Chapter 7, most property may be protected. Chapter 13 provides for a 3- to 5-year repayment plan equal to the value of nonprotected assets and works better for debtors who can afford the payment plan.

Debtors in Tennessee can take advantage of exemptions provided under state law but not federal bankruptcy law. State and federal exemptions have many similarities, however. Typical exemptions include life insurance benefits, cars, pensions, retirement benefits, residential property and work implements such as tools and inventory. State law places a monetary limit on each exemption.

Domicile requirements determine which exemption laws apply. The 730-day rule requires following the bankruptcy rules of the state where the debtor lived, paid taxes and voted for the preceding 730 days or two years. For debtors who have not lived in the same state for the last two years, the 180-day rule requires following the rules of the state where the debtor lived during the 180 days before the bankruptcy filing.

There are also available federal exemptions that are not contained in the federal bankruptcy code that can be used by debtors who file through their state. These are usually available to a specific group and occupation and exempt retirement benefits for railroad workers, CIA employees, veterans, Social Security recipients and civil, foreign or military employees.

Tennessee and other states also provide a homestead exemption that exempts a certain amount of their principal residence because of the equity that people hold in their home. The Bankruptcy Abuse and Prevention Act of 2005 now prevents homeowners from trying to protect their home and other property by living to a state that provides more generous exemptions and then buying a more expensive home by placing a monetary limit on exemptions. Filing for bankruptcy may be complicated and have long-term financial consequences. An attorney can help provide options and protect assets.

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

Toll Free: 888-376-0282
Phone: 423-933-1606
Fax: 423-877-0363
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