Filing for bankruptcy can help you regain control over your budget and stop aggressive collection activity. It can also lead to a discharge of your unsecured debt, like credit card balances or hospital bills.
There are many forms of bankruptcy, and Chapter 7 bankruptcy is one of the most popular options. People sometimes also call Chapter 7 a liquidation bankruptcy. If you file Chapter 7 proceedings, you don’t have to spend years repaying your creditors like you do in Chapter 13 bankruptcy.
However, you may have to sell or liquidate some of your assets to repay your debts before the courts will discharge your debt. You have to provide information to the courts about your assets, and they have the authority to order you to use some of your property to repay your debts. However, that only happens in rare occasions when you cannot exempt all of your assets. Exemptions allow you to protect property from liquidation.
There are federal and state exemptions
The federal bankruptcy code creates certain exemptions. State bankruptcy laws also create state-specific exemption options. Some states allow individuals to use the federal exemptions, while others only permit the state exemptions, and some allow either.
Provided that you have lived long enough in New Jersey or Pennsylvania to file under their bankruptcy laws, you will have the option of choosing your exemption. Pennsylvania and New Jersey allow those filing for bankruptcy to pick the exemptions they would like to claim.
Your personal holdings influence the exemptions you need
People frequently worry about protecting their homes, furnishings, retirement savings or vehicles during bankruptcy proceedings. The value of your property will influence which exemptions are better when you file.
You have to create an inventory of your assets when you file, and reviewing the fair market value of your personal property can help you decide whether the federal or state exemptions will help you protect more of your assets. There are wildcard exemptions that can help you protect specific assets if you use state exemptions. Federal exemptions may allow you to re-allocate part of your unused homestead exemption to other property.
The better you understand the exemptions available during a Chapter 7 bankruptcy filing, the easier it will be to make decisions that protect your financial future.