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Supreme Court ruling protects exempt funds from bankruptcy courts

Ohio residents who are on the verge of filing for bankruptcy protection may be interested in learning about a recent ruling by the Supreme Court of the United States that suggests it is unlawful for bankruptcy courts to seize exempt assets. According to a report from Washington, the ruling was made by unanimous decision on Tuesday, March 4.

The decision was handed down after a case concerning a man from California was brought to the court's attention. The man had file for Chapter 7 bankruptcy, and he claimed that California's homestead exemption protected $75,000 of the value of his home from being included in the bankruptcy estate. Later, it was discovered that the man had been shielding his assets fraudulently.

The case was heard by a federal bankruptcy court that ruled that the $75,000 that had previously been exempted could be used to cover the cost of discovering the fraud; the funds would be used to cover the cost of attorney fees. The ruling was upheld after the case was brought to a federal appeals court. However, the Supreme Court reversed the rulings by the lower courts, stating that a bankruptcy court does not have the authority to punish misconduct by tapping into exempted assets.

While bankruptcy may allow individuals to pursue relief from harassment by creditors, each case includes different factors that may affect the filing. In this case, for example, a $75,000 homestead exemption may have a dramatic impact on an individual's lifestyle. A lawyer who is familiar with bankruptcy law may be able to help individuals understand the benefits of pursing debt relief under Chapter 7.

Source: Sioux City Journal, "Court: Exempt funds protected in bankruptcy", March 04, 2014

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