Exempt property is property that is exempted from the bankruptcy estate.  This is property that debtors can keep and that a Chapter 7 trustee CANNOT take from them.  Exemptions are allowed in order to help people get a fresh start.  When debtors properly claim their exemptions, they are usually allowed to keep their basic furniture, clothing and other necessities.  Also, depending on the value, debtors can often keep vehicles and homes in their Chapter 7 bankruptcy cases.

If the value of the property exceeds the value of the exemption, the Chapter 7 trustee could take and sell the property for the benefit of the debtor’s creditors.  If the trustee sells any of the debtor’s property, before any money is disbursed to creditors, the trustee must pay the debtor the dollar amount of the debtor’s rightfully claimed exemption. This means that if the debtor owns a car that is worth $5,000 and the debtor claims an exemption in the car in the amount of $2,500 (the state of Utah currently limits a motor vehicle exemption to $2,500 per person), then the Chapter 7 trustee might take and sell the vehicle.  If the trustee does sell the car, the trustee would first pay an auctioneer to sell it and then the next $2,500 would be paid to the debtor.   As a rule of thumb, trustees only sell property if it will net them enough money to pay a reasonable amount to creditors.  If a trustee only nets $100 from the transaction, the trustee might not take the property for sale.

For homes and vehicles, most states require that the debtor’s name be titled on the property in order for an exemption to be claimed.  For instance, if a couple owns two cars and they are both titled in the husband’s name only, the husband will be the only one who can take advantage of the vehicle exemption and the wife will be unable to claim any vehicle exemption at all.

Debtors must use the exemption laws and rules for the state where the debtor lived exactly two years before the bankruptcy case was filed.  This means for a bankruptcy case filed June 30, 2012, the debtor will use the exemption laws from the state where the debtor lived on June 30, 2010.  This can get rather tricky because some states only allow a debtor to claim that state’s exemptions if the debtor is currently living in that state.  If this is the case for a debtor, then the debtor may be entitled to claim the federal exemptions.

Before the debtor files a bankruptcy case, it is important to understand exactly what the debtor’s state exemption rules are and which exemption laws the debtor is required to use.  This way the debtor will not be surprised if or when the Chapter 7 trustee demands that the surrender of certain property for the trustee to sell.  For this reason alone, it is very important to consult a Utah bankruptcy attorney who can help understand exemption laws.


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