Understanding Exemptions

Understanding Exemptions in bankruptcy

Many people worry about having to give up some or all of their property or personal belongings if they file a bankruptcy. Generally, an individual does not have to worry about this problem.

No matter which type of bankruptcy a person chooses, the law allows certain property in specific categories to be exempt from the bankruptcy. This means that the person can hang on to this property with generally no adverse consequences. The only time a person may have to worry is if the value of their personal property exceeds the limits allowed by law. If that happens, then a Trustee can demand that the excess property be sold, or require you to pay its value into the bankruptcy for the benefit of unsecured creditors.

Arkansas is a state that allows a debtor to use either the federal exemptions or the Arkansas constitutional exemptions, whichever is most advantageous to the debtor. Sometimes, if a debtor has a paid-for homestead that has a lot of equity, it may be necessary to use the Arkansas exemptions to fully protect the homestead. Even though the Arkansas exemptions are more liberal with respect to a homestead, they are more restrictive as to other items of personal property. Your lawyer can fully advise you on this issue.

The federal law lists specific categories of property that are considered exempt, such as: equity in a homestead, equity in a vehicle, household goods & furnishings, jewelry, tools, books, IRA’s, 401(k)’s, etc. However, there are dollar amount limits on each of these categories. One part of the bankruptcy process will have you identify all such personal property and place a current value on each item.

Your lawyer will review your individual list of property, apply the exemption law and determine if there is any reason for concern. Most individuals never have a problem with their exemptions.