Definition - What does Exempt Debts mean?
In a Chapter 7 bankruptcy, there are certain assets that are exempt from being liquidated due to the necessity of the item in order to live or work. These items include a family home, motor vehicles, clothing, furniture, tools and business related equipment, pensions, and a small allowance for jewelry such as for wedding rings. A Trustee is tasked with determining which debts are allowed to be exempted and since the work needs are considered the number of exemptions can be different from one case to the next.
It's important to note that many of these exemptions must fall within a certain statutory determined value. Most of the time, people who file bankruptcy or only allowed to keep one vehicle. Even then, it can only be worth a certain amount or the Trustee can either request that the debtor pay the bankruptcy estate the difference between the statutory limit and the actual worth of the vehicle or the Trustee can sell the vehicle. The homestead exemption applies to homes. In some jurisdictions, it also is a total amount that will be protected by the bankruptcy statutes. For questions on the amounts, please consult a bankruptcy attorney in your jurisdiction.
Justipedia explains Exempt Debts
The purpose of exempting certain debts is so the person can build their lives back up and not be left worse off than they already were. The point of filing bankrupcty is the allowance to keep certain items while wiping others away. Some states have more strict guidelines for determining the limits; Florida is known as a state that has a much higher level of allowances compared to other states. Depending on the type of work done by the debtor the list for exemptions can be quite extensive. Everything that is claimed as an exempt debt must be listed before the bankruptcy commences or it will not be considerred and still be liable to court process.
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