The Exempt Property definition in line with bankruptcy is quite simple to understand. Basically, the term refers to any property that the creditors cannot go after in payment for the balance of the debtor. Typically, bankruptcy proceeds when the person in debt sells off all his assets and uses the funds to schedule payment to his creditors. Exempt property is simply possessions that need not be sold off, as ordained by the law.
Exempt Property Examples
In order to provide the person in debt or petitioner the chance to continue day to day life after declaring bankruptcy, the court allows him to keep certain necessities, classified as exempt property. That being said, exempt property is therefore anything needed on a day to day basis. Examples of this category include but are not limited to the following:
- A portion of equity in the home owned by the petitioner;
- Some vehicles, usually with a value limited up to a specific amount;
- Reasonable number of clothes;
- An adequate amount of furnishings and household appliances;
- Jewelry, but only up to a certain value;
- A percentage of the earned but unpaid wages;
- Personal injury damages awarded to the debtor;
- Tools used by the debtor in his profession, up to a certain amount;
- Public benefits including assistance, unemployment compensation, social security and others.
It stands to reason that everything else not included in the exempt list is non-exempted. However, some people still have problems categorizing the two. The following are some of the most commonly asked about properties that are actually not exempted:
- Second home;
- Second vehicle;
- Family heirloom;
- Cash in banks and investments;
Creditors Claiming Exempt Property
Creditors are often aware of the limits of their ability to claim from a bankruptcy plea. It is therefore safe to assume that they will not go after these items unless there is a reasonable case to suggest a possible decision in their favor.
Understand though that the fight usually centers on the proper classification of exempt and non-exempt. It is up to the debtor to prove that the property is exempted and therefore cannot be touched by the creditor. Note that this varies on a case to case basis, depending on the very nature of the situation, especially the lifestyle of the debtor. Calculations are often made to determine the proper portion between exempt and non-exempt.
Determining whether property is exempt or not falls as a decision of the court – but it is usually best to resolve this problem before it becomes a major concern. Lawyers for both parties should be able to provide sufficient help in this situation, allowing them to agree over the classification and speed up the process of bankruptcy declaration.
Note that creditors often have to be wary in situations like this, especially if they don not have a strong case. Constantly calling a debtor to ask for payment may be classified as harassment, therefore allowing the debtor to bring the creditor to court. In some cases, this leads to the latter paying the former for harassment.