One of the most commonly filed bankruptcy in the United States is Chapter 7 Business Bankruptcy. It helps cancel all the debts of people who do not have sufficient income to pay their creditors. After filing for chapter 7 bankruptcy, all the deaths are discarded, and the person can get a new start in their financial part of life.
However, the person filing for bankruptcy is required to sell all their substantial assets to pay their creditors. But some assets can be retained even after filing bankruptcy as they are exempt.
Only those debts can be discarded through chapter 7 bankruptcy that is not secured by collaterals. Such debts can include debts on the credit card as well as unpaid medical costs. Many people have the misconception that they will lose all of their property after filing for bankruptcy.
The bankruptcy law has some exemptions which allow people to retain some assets. Those properties are exempt from liquidation for paying off debts. The exceptions protect certain assets held by the person filing bankruptcy.
Exemptions of Chapter 7 Bankruptcy
Below are a few exemptions for chapter 7 bankruptcy.
House and Property
The house and property you own can be protected through the homestead exemption. The amount is $136,925, which can be increased if two spouses jointly file for bankruptcy.
Single motor vehicles and automobiles are protected from bankruptcy till $3,775.
Personal Cash and Household equipment
Personal cash inside banks or in hand is protected for up to $475. Additionally, household products like furniture and appliances are also exempt from liquidation till $12,250, and jewelry is protected till the amount of $1700.
401(k), 457, IRA, and other retirement plans are also exempt.
Wild Card Exemptions
Some states allow people to keep properties up to $1250. The only exception is that it must not be a part of real estate. This exemption is utilized for protecting assets not protected by other exemptions.
Are Tax Refunds Exempt to Bankruptcy?
Tax refunds are not exempt and can be included in bankruptcy estates. However, individuals can keep tax refunds for the tax year of the bankruptcy filing. The refunds can be kept wholly or in parts as it depends on income gained after filing for bankruptcy. The refunds filed after the years following bankruptcy can be saved as well. The refunds of previous years before bankruptcy will not be kept as they will be included in the bankruptcy estate for paying off the debt.