Filing bankruptcy has a negative connotation in our society. However, for some people, including those with overwhelming medical debt, it may be the most attractive and only way out of their financial predicament. A popular belief is that, when someone files for Chapter 7 federal bankruptcy, they lose everything that they own. It will be taken by their court-appointed trustee and sold to make money to pay their creditors.
Although this basic concept is correct, a trustee does sell estate assets to make money to pay creditors, there are certain types of personal property that a debtor will be allowed to keep and that will be exempt from the bankruptcy process. Items that can be protected against bankruptcy can range from something as simple as clothing to something as meaningful as a debtor's house. Bankruptcy exemption laws passed in each state will list exactly what items can be claimed as exempt. Wading through bankruptcy law can be extremely confusing for inexperienced people, however, and if someone is contemplating bankruptcy they should consult with a competent bankruptcy attorney who will assist them with completing and filing their bankruptcy petition and schedules.
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The bankruptcy exemptions that can be claimed by debtors in Texas and New York are somewhat similar but each state does also have certain unique provisions that apply only to debtors filing in that state. To almost every debtor, the most important exemption will be the homestead exemption, which in layperson's terms is the debtor's house. In terms of the exemptions applicable in Texas, either 10 acres of land including the home on that land, or a specific amount of rural land, can be claimed as exempt. New York exemption rules, on the other hand, state that an individual debtor can protect up to $10,000 equity in his house and a couple filing jointly can exempt up to $20,000 equity.
The debtor's car is usually his next most important asset because it is essential to have transportation in today's society. In Texas the exemption law says that up to 100% of one vehicle can be exempted. New York exemption law says that up to $2,400 in value of one vehicle can be exempted. For those debtors who run their own business, there is the exemption that covers tools of the trade.
Under Texas law, a debtor's bankruptcy lawyers can claim as exempt trade tools to the value of $750 and, under New York law, they can claim as exempt tools to the value of $5,000. A debtor's clothing is also important and in Texas 100% of a debtor's interest in clothing and similar personal items can be claimed as exempt. In New York, clothing and personal heirlooms valued at up to $5,000 can be exempted. Other state-specific exemptions are in place to protect things like alimony, qualified retirement plans, life insurance proceeds and unemployment compensation benefits which proves that bankruptcy is not a way to eliminate property but rather to eliminate debt.
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