Assets That Are Exempt From Bankruptcy, File Bankruptcy, Bankruptcy Law

Assets That Are Exempt From Bankruptcy

Many people think that when someone files bankruptcy, they lose everything they own: House, car, clothes and furniture. This is not the case. Most items that people need to live are assets that are exempt from bankruptcy law. Even with the new bankruptcy laws intact, those who file bankruptcy are able to keep personal items that are exempt from creditors, with certain stipulations.

Bankruptcy filing is mandated by federal courts. For this reason, bankruptcy law is the same throughout the United States. Bankruptcy petitions are filed in Federal court in what is known as "bankruptcy court." An individual or their attorney files a petition in bankruptcy court asking for protection from the court against creditors and, if filing Chapter 7, elimination of their debt.

An individual filing bankruptcy must fill out disclosure papers that indicate the total amount of their assets. The disclosure form will ask how much you earn, an itemization of all of your debt, including mortgage and car payments, and any other assets you may have in the bank, in stocks or in savings plans. Falsifying information on this form is a federal offense, and many people end up in prison every year for bankruptcy fraud.

If you owe more than 80 percent of your homes value in a mortgage, you may keep your home. You can also keep your car if it is worth less than $2,000. You are also allowed to keep $2,000 in cash when filing bankruptcy. The purpose of filing bankruptcy is not to make you indigent, but to protect you from creditors and either reduce or eliminate your debt. The bankruptcy court does not expect you to live in a tent and give up your car and all worldly goods. People need a place to live, transportation to get bank and forth to work, food and clothing and the bankruptcy court realizes this. For this reason, certain items are considered assets that are exempt from bankruptcy.

Children's college funds are also exempt from bankruptcy, as long as they are in a special college fund account. In most cases, pensions and IRA accounts are also exempt from bankruptcy. There is usually a large fee associated with removing IRA funds as well as tax penalties; for this reason, these accounts are left intact and considered exempt from bankruptcy.

Although you will have to give an estimate as to the value of your furniture and personal possessions, no one will come to inspect your home to discover that your sofa is actually worth $600 when you listed it as $500. If, however, you have a large coin collection worth hundreds of thousands of dollars and you do not declare it as an asset, you can be subject to a violation of federal bankruptcy law and either imprisoned or fined.

Declaring bankruptcy is never easy, but you do not have to lose everything you own. If you have reached the point of bankruptcy, most of what you own is more than likely assets that are exempt from bankruptcy law.