Bankruptcy Alphabet: E is for Exemptions

E stands for exemptions in my Bankruptcy Alphabet. Exemptions describe the possessions you get to keep when you file bankruptcy.

E could also stand for Exception, since exemptions are the only place in bankruptcy law where the law is explicitly different from state to state.

The Bankruptcy Code gave the states the right to prohibit their citizens from using the federal exemptions and to limit them to the exemptions provided by state law. Most of them took the feds up on the offer.

California had it both ways: it denied residents the right to claim the federal exemptions, then enacted California bankruptcy exemptions that mirrored the federal exemptions. Go figure.

The right to keep some assets away from your creditors is grounded in the idea that a debtor needs something with which to start over.

When a debtor designates some piece of property as exempt, it leaves the bankruptcy estate, that mythical pile of possessions that the debtor entered bankruptcy with. Neither the creditors nor the bankruptcy trustee can take exempt property from the debtor.

Exemptions protect the equity in an assets. So, the debtor may end up keeping a house worth lots more than the dollar amount of the exemption because a large part of the value of the asset has been pledged to secure a mortgage loan. The debtor doesn’t have to exempt that part of an asset charged with securing a debt.

There are also unwritten exemptions, or functional exemptions. The laws of economics say that the trustee will not gather up and sell assets with so little value that the costs of sale leave little for creditors. For that reason, debtors often keep more than the exemption system provides because it’s simply too expensive to sell things worth relatively little.

Sadly, it is the choice of exemptions where many people who attempt to file bankruptcy without a lawyer get in trouble. It isn’t trouble with the system, it’s trouble in that they short change themselves and leave unprotected something they could have kept despite the bankruptcy, if they had done the exemptions right.

This discourse on Exemptions has been brought to you by the letter “E”.

Consumer protection lawyer Jay Fleischman, who started this letter madness, thinks “e” is for Executory Contract.

Image courtesy of takomabibelot.

24 Responses to Bankruptcy Alphabet: E is for Exemptions
  1. Bankruptcy Alphabet: F is for First
    November 10, 2011 | 7:11 am

    [...] be available to pay the claims of creditors.? In the vast majority of cases, the debtor’s bankruptcy exemptions protect everything he [...]

  2. [...] E Is for Exemptions [...]

  3. Bankruptcy Alphabet: H is for House
    November 13, 2011 | 4:06 pm

    [...] the homestead exemption allowable to the debtor, [...]

  4. [...] there is nothing to protect and should you happen to file for bankruptcy you do not need to use an exemption to protect this [...]

  5. E is for exemptions « attorneyaxinn
    November 18, 2011 | 12:24 pm

    [...] Cathy Moran [...]

  6. What You Can Keep When Filing Bankruptcy
    November 19, 2011 | 8:22 am

    [...] That “stuff” (a legal term, in my office<g>) is more than just the assets that are exempt by [...]

  7. Bankruptcy Can Make Retirement Possible
    December 3, 2011 | 10:58 am

    [...] good thing to come out of bankruptcy “reform” in 2005 was a provision that created an exemption available to everyone who files bankruptcy for up to a million dollars in an IRA.? That’s [...]

  8. Euphoria Debt Then Bankruptcy
    December 6, 2011 | 9:43 am

    [...] Moran Claims E is for Exemptions [...]

  9. [...] order to provide proceeds to the debtor?s creditors. If assets are available, and non-exempt (see here for what this means), then the Trustee may take control of those assets, sell them and distribute [...]

  10. Bankruptcy Alphabet: T is for Tension
    December 7, 2011 | 7:05 pm

    [...] (please tell me about the logic of that approach), now debtors walk out of bankruptcy with their exempt assets to facilitate a fresh start.? Here in Silicon Valley, they often join a start up, or found a [...]

  11. [...] Bankruptcy Alphabet:E is for Exemptions by Cathy Moran, Northern CA [...]

  12. "E" Is For Exemptions | Downriver Bankruptcy
    December 15, 2011 | 9:33 pm

    [...] California exemptions [...]

  13. [...] Emergency Filing Equitable Distribution Euphoria Eviction Examination Executory Contract Exemptions Exemptions [...]

  14. JC Law Group
    December 19, 2011 | 4:07 pm

    [...] Emergency Filing Equitable Distribution Euphoria Eviction Examination Executory Contract Exemptions Exemptions [...]

  15. [...] Emergency Filing Equitable Distribution Euphoria Eviction Examination Executory Contract Exemptions Exemptions [...]

  16. Bankruptcy A-Z: E is for Exemptions | Metro Richmond Consumer, Bankruptcy and Small Business Lawyer | Goldstein Law Group
    December 23, 2011 | 5:16 am

    [...] is for Executory Contract. E is for Exemptions or Exemptions or Exemptions or Exemptions. E is for Emergency Filing. E is for Euphoria. E is for Equitable [...]

  17. [...] of your home so that will not be a problem. Your personal property can also be protected under the bankruptcy exemptions so it appears you have no equity [...]

  18. [...] in your home that exceeded the amount that you we permitted to exempt (learn more about exemptions here and here), you may not meet this [...]

  19. [...] grubstake never appears in the bankruptcy code or the California Code of Civil Procedure where the exemptions available in bankruptcy cases filed in California are [...]

  20. [...] For a more detailed discussion of exemptions see attorney Cathy Moran’s article. [...]

  21. [...] Filing, Exemptions, Executory Contract, and Emergency Fund. Tags: Bankruptcy Alphabet, emotional spending [...]

  22. [...] Filing, Exemptions, Executory Contract, and Emergency Fund. Tags: Bankruptcy Alphabet, emotional spending [...]

  23. [...] Equity Equity Equity Euphoria Everything Eviction Examination Exceptions to Discharge Exemptions Exemptions Exemptions Exemptions Exemptions Exemptions Exemptions Expenses [...]

Leave a Reply

Wanting to leave an <em>phasis on your comment?

Trackback URL http://www.bankruptcysoapbox.com/bankruptcy-alphabet-e-for-exemptions/trackback/