Bankruptcy exemptions are used when a person files for one of the chapters. Filing is about getting control of one's financial budget and debt. Many bankruptcy attorneys will suggest leaving the guilty feeling behind, and instead concentrating on the future; the fresh start of learning how to manage finances in a responsible and organized way. Not only do regular people file for personal bankruptcy, but large international organizations do as well. However, this doesn't change the fact that people should keep financial promises. When a Christian agrees to pay a debt, as with using a credit card, they are also making that promise to God. The Bible says: "When thou vowest a vow unto God, defer not to pay it; for he hath no pleasure in fools: pay that which thou has vowed" (Ecclesiastes 5:4-5). Both the moral and financial issues of the situation must be considered when a person wants to go bankrupt.
The best part of debt forgiveness is learning and understanding what went wrong with the decisions that were made and to develop a plan of how to fix it. Exemptions are the items that are not included in a discharge. There are two major types: chapter 7 and chapter 13. Filing for chapter 7 requires the debtor to liquidate all unsecured debts minus the bankruptcy exemptions. Chapter 7 bankruptcy applies when the expenses a person has outweigh their income. A debtor will receive a discharge from all their unsecured debts within 7 months from filing. Filing for bankruptcy, chapter 13, forces creditors to negotiate. This type is filed when the debtor's income outweighs their expenses and when a debtor is default on the non-bankruptcy exemptions such as mortgage, car payment, taxes, and child support. They must also have years of unfiled tax returns, and assets that are worth more than their available exemptions. Chapter 13 bankruptcy allows the debtor to pay off their debts at much lower amounts than actually owed, and it is considered paid in full.
All that is exempt is a portion of the debtor's personal property that can be kept, while all other assets are liquidated. These exemptions are dependent upon the status of the debtor. When filing for bankruptcy, the statutes change from state to state. For example: in Texas a single person can only exempt a total amount of $30,000 in property. A family n Texas can only exempt a total of $60,000 in property. In addition to the numerical worth, all household furnishings are said to be included in the property bankruptcy exemption. All food and clothing is also an exemption. Jewelry can be exempted as long as the worth does not exceed 25% of the state individual limit. More exemptions include farming and ranching equipment for farmers or those whose livelihood depend on the cultivation and sales of plants, or animals.
All smaller athletic equipment such as bicycles, tennis rackets, roller blades, and ski equipment are exempt. Athletic equipment that is not included are sailboats, jet skis, and powerboats. A two, three, or four wheeled vehicle is exempt for each member of the household that holds a drivers license. Household pets are exempt. Health aids such as wheelchairs, elevators, and air filtration systems are also considered bankruptcy exemptions. Many people filing for debt forgiveness wonder if life insurance policies are exempt, the answer is yes. Life insurance policies are exempt because they were established to support a beneficiary in case of death of the debtor. In addition to life insurance policies, all retirement financial accounts such as IRA's and 401k's are considered.
It is important to take a complete inventory of all assets to determine which type of bankruptcy is the right decision. It is also important to consider an alternate method for debt removal that does not involve filing for bankruptcy. Sometimes the assets are much more that the bankruptcy exemptions limit. In this case it may be wise to evaluate whether or not a different plan of liquidation can allow the debtor to pay their debt without having to obtain the stigma and bad credit of filing for bankruptcy that will stay with them for the next 7 to 10 years. Statistics show that personal bankruptcies are reaching record levels. This is not surprising since consumer debt levels are also reaching record highs.
Those that are younger should think long and hard about whether or not filing for bankruptcy is the best decision. Debt forgiveness causes serious damage to the credit report score, which is required to apply for any other loans or types of credit in the future. If a debtor is planning on buying a home or car within the next 7-10 years, going bankrupt will force them to pay much higher interest rates, which in turn renders the item purchased a lot more expensive than it is worth. Debtors should weigh all options and seek counsel before making any major decisions.
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