If consumers are overwhelmed with debt, they commonly choose bankruptcy, but they may hesitate, thinking they have to give up everything. While Chapter 7 requires consumers in Escondido, California to sell nonexempt assets, some assets may be saved with exemptions.
Overview of assets and exemptions in Chapter 7
Nonexempt assets in Chapter 7 include things not needed for daily living, such as a luxury vehicle or expensive jewelry. The trustee commonly cannot sell a primary vehicle or older vehicle, primary residences, health aids, and retirement accounts. The trustee commonly pays priority debts, such as child support and back taxes, first followed by unsecured debts, such as credit card debt.
Bankruptcy exemptions are commonly based on a dollar amount and the remaining equity, or the difference between the debt and value. A consumer may choose either federal or state exemptions, but they cannot use both, and some states don’t have federal exemptions.
Bankruptcy exemptions commonly change every three years to reflect current market values based on the Consumer Price Index. Federal exemptions allow homeowners a homestead exemption for real property of up to $25,150, and it doubles for married couples. Personal property exemptions allow consumers to protect:
- up to $1700 for jewelry
- up to $2,525 for tools of the trade, including books
- up to $4,000 for motor vehicles
- up to $25,100 in personal injury compensation
The Wild Card exemptions allow the consumer to protect any property up to $12,575 in unused homestead equity. Some other public benefits protected by exemptions include social security, unemployment, public assistance, disability, criminal restitution, and veteran’s benefits.
A consumer who doesn’t qualify for Chapter 7 can file Chapter 13, which is a repayment plan. Exemptions are also used in Chapter 13, which doesn’t require selling property, to determine repayment amounts.