Markham Bankruptcy Lawyer Explains Exemptions: What Property Is Prot...

Foremost in many debtors’ minds is that upon filing for bankruptcy relief, they will be divested of everything they own.  Not only is this mistaken, it is wrong.  Bankruptcy courts don’t seek to leave debtors destitute.  In fact, the courts, using both the Bankruptcy Code and the state and federal exemptions that exist to protect debtors seek to give debtors a fresh start.
Bankruptcy is a federal system that uses federal law.  Despite that, bankruptcy allows debtors in certain states to use their state law exemptions, while in other states debtors may choose to use the exemptions provided by federal law or those provided by their state’s law.
Different assets are protected differently regardless of which set of exemptions is being used.  Tax-qualified retirement plans and pensions are protected in their entirety.  After that, protections for assets differ as wildly as the assets themselves.  Depending on where a debtor lives – and how long one has lived there – the amount of property you can protect may affect the chapter under which one declares bankruptcy.
The reason for this is politics.  Before the old Bankruptcy Act was transformed into the Bankruptcy Code in 1978, there weren’t enough votes for passage of the bill.  A deal was cut that allowed certain states to opt out of the more narrow federal exemptions and allow their citizens to use their more expansive state law exemptions.  For example, homestead exemptions in Georgia and Kentucky only protect $20,000 and $5,000 respectively, while in Florida and Iowa homes of unlimited value are exempt, subject to size and acreage restrictions only.
When the Bankruptcy Abuse Prevention and Consumer Protection Act was passed in 2005, many of the amounts for exemptions were increased.  Even so, there are those who feel that the amounts are artificially low and don’t provide the debtor with a true fresh start.  In any event, the exemptions are there to be used and a skillful and experienced bankruptcy attorney will know how best to use them to protect a debtor’s equity in assets.