What are exemptions and how do they work?

Exemptions refers to what property a person gets to keep, that may not be seized by creditors. Exemptions apply whether someone is in a bankruptcy or not. There are both federal and state exemptions. Most states do not allow the federal exemptions just the state exemptions. Those that allow both require a bankruptcy filer to choose one or the other, either the state exemptions or the federal bankruptcy exemptions. You cannot mix and match. The state exemptions have been provided in your written materials for each state. These materials also indicate which states allow you to choose the federal exemptions if you like. For some people, the state exemptions protect more of the type of property that a debtor in bankruptcy may have, for others...the federal exemptions may be more helpful. There is no across the board general rule of thumb. Look at what you own and see what the exemptions allow you to keep, and then consult your attorney. Here is an example of how an exemption works. In Nevada vehicles are exempt up to $15,000.00--you owned a car that was completely paid off and worth $10,000...the car would be totally exempt meaning the bankruptcy trustee would not take it. But, if the car was worth $20,000 and was completely paid off...then this would be $5000 more than the state exemption allows and the Trustee would probably seize the car and auction the vehicle to pay the $5,000 difference to the creditors. Personal property is valued at garage sale value not at replacement value. For example, a couch you paid $1,000.00 for...may only have a value on the bankruptcy schedules of $100. It is the amount that a reasonable person would pay for the property in its current condition-not new. So don't overvalue your stuff when listing your assets. But don't undervalue your stuff either...you do that and you risk attracting the attention of the Trustee who may thinking you are trying to pull a fast one. A special note on home exemptions...also known as homestead exemptions. Equity in a home is protected up to a certain amount which varies from state to state. Equity is the difference between the value and the amount you owe. If your home is worth $200,000 and you owe $140,000, your equity is the difference of $60,000.

ANTHONY: Homes purchased within 1,218 days before filing are limited to a cap of $125,000 in equity. For example, Nevada allows up to $350,000 in equity as of the writing of this material. But if you purchased your home less than 1218 days ago you would only be entitled to the cap of $125,000. If the cap in your state is less than $125,000, it remains unaffected, meaning it does not increase to $125,000 just because you bought it less than 1218 days ago. By the way, I have no idea why they came up with this precise number of 1218 days. Home exemptions are also limited to $125,000 if the debtor has been convicted of a felony, is guilty of state or federal securities fraud, racketeering, or intentional torts that have caused serious bodily injury or death within five years of filing.