In a Chapter 7 bankruptcy in Tennessee, understanding the distinction between exempt and non-exempt property is crucial for filers. This categorization determines which assets the filer can automatically retain through bankruptcy.
Exemptions are provided by both Tennessee state law and federal law, although Tennessee requires filers to use state exemptions. While some assets aren’t automatically exempted from the bankruptcy process, it might be possible to keep those. This is often the case if there aren’t enough non-exempt assets to warrant liquidation.
Exempt property in Tennessee
Exempt property is what the filer is allowed to keep to maintain a basic standard of living and secure a fresh start post-bankruptcy. A few exemptions under Tennessee law include:
- Homestead exemption: Protects $5,000 to $20,000 in equity in the filer’s primary residence, depending on specific factors, such as minors in the home and marital status.
- Personal property: Tennessee law allows for exemptions in personal property, including clothing, school books and health aids. It also allows a wildcard exemption of $10,000 for items based on their fair market value
- Vehicle exemption: A specific exemption is available for one vehicle per filer, allowing for the protection of equity in a car up to that limit.
- Retirement accounts and pensions: Most tax-exempt retirement accounts, including 401(k)s, 403(b)s, IRAs and defined benefit plans, are fully exempt under federal law and are protected in Tennessee bankruptcy filings.
- Tools of the trade: Equipment, tools, and books necessary for the filer’s profession or business can be exempted up to a certain value, enabling the filer to continue working and earning an income.
Anything over those would be subject to liquidation at the discretion of the bankruptcy trustee. The likelihood of that occurring is low, especially when the income requirements to file Chapter 7 bankruptcy are considered. Seeking assistance from someone familiar with this process may help potential filers to better understand how they may be impacted by filing.
