Chapter 7 Bankruptcy Exemptions
Federal and state bankruptcy laws reflect the public policy value that no one should be deprived of all of their property. The federal bankruptcy laws, as well as the state laws where you reside, therefore, both allow for certain “exemptions.” Federal exemptions are the same for all bankruptcy filers nationwide, while state exemption limits vary from state to state. The debtor may choose whether to use the federal or state exemptions; in general it’s best to use the federal exemptions because they are more ‘generous’ (that is to say, higher).
How your assets will be treated with respect to these exemptions depends on how much ‘equity’ you have in the property. Equity for all property that is not collateralized (that is, there are no liens against it) is simply the fair market value of the property. Equity for property that does have a lien against it (the most common examples being a house or a vehicle) is calculated simply by subtracting from the fair market value of the property any amounts you owe on loans secured by that property. For example, let’s say your house has a fair market value of 0,000, and that you have a first mortgage outstanding balance of 0,000, and a second mortgage (or home equity loan) balance owed of ,000. Your equity would be calculated as:
Fair market value: 0,000
