If you find yourself in a financial crisis and chapter 7 bankruptcy is the only option, the first thing you worry about is losing everything you have worked so hard for over the years. However, there is something called exempt property in a personal bankruptcy filing. The exempt status of personal belongings is set in place so you can keep many items for your fresh start after bankruptcy.
Federal Bankruptcy Exempt Personal Property
The federal laws of the U.S. Code for Title 11, allows each debtor to claim exemptions for personal property. This means that if a husband and wife file for chapter 7 together, the property exemption is doubled. Federal law says that you can keep a vehicle valued up to $3,450 and household furnishings, musical instruments, books, appliances, clothes and household goods up to $550 per item and up to a total of $11,525. You can keep jewelry valued at $1,450 or less and health aids as of 2012. These amounts doubel if a husband and wife file together.
State Bankruptcy Exempt Personal Property
Each state has different laws pertaining to exempt personal property. Washington allows you to keep a private library with a value not more than $3,500, yard and home equipment, appliances, and furniture and household goods with a total value of $6,500, but no one item can have a value of $750 or more. A vehicle can only have a value of $3,250 or two vehicles if husband and wife are filing, with a total value of $6,500 as of 2012.
Arizona breaks the law of personal exempt items down into a list. Arizona residents can keep one living room couch, one television, one clothes dryer and one vacuum cleaner and so forth, but if husband and wife file, the items that can be exempt from chapter 7 bankruptcy doubles. Clothes are exempt in Arizona, but the fair market value cannot be more than $500. Musical instruments can only have a fair market value of $250 or less, but federal law has an upper limit of $550. Arizona exempt property also includes wedding and engagement rings. The fair market value cannot be more than $1,000 as of 2012.
Choosing Bankruptcy Laws
Arizona and many other states opted out of the federal bankruptcy laws pertaining to exempt property. Instead of following the federal bankruptcy laws, the court follows the state bankruptcy laws pertaining to exempt property in a bankruptcy case if the resident meets the state’s residency qualifications. One state that gives you an option is California, which allows the individual filing chapter 7 to choose to follow the state laws or federal bankruptcy laws pertaining to personal property exempt from seizure and sale.
Claiming Exempt Property
Claiming exempt property in a chapter 7 bankruptcy is done by listing the personal items on Schedule C: Property Claimed as Exempt. You must fill out the form accurately or if you have an attorney, he will have you fill out a similar form so he can enter the information on the Schedule C. Before filing for exempt property, you must know if you are using the state or federal bankruptcy laws and obtain a detailed list of every item that can be claimed, as the list and fair market value of allowable items can change.