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What is exempt and what is not exempt in Chapter 7 liquidation?

Contrary to a common misconception about Chapter 7 bankruptcy, people who file for this kind of bankruptcy do not need to liquidate every single piece of personal property they own. Indeed, some items of personal property will be exempt from liquidation and bankruptcy filers will be able to keep it.

The issue of what is exempt and not exempt is sometimes subject to debate. However, there are certain items that will clearly be exempt. This article will discuss which things you will generally be able to keep and which things you will need to let go of during your bankruptcy filing.

First, let us look at things that people tend to find very difficult to let go of, but sadly are still not exempt from bankruptcy liquidation in Chapter 7 proceedings. Unless the person is a professional musician, expensive musical instruments are not exempt. Coin collections, stamp collections and other types of valuable items are also not exempt. Family heirlooms, no matter how much sentimental value they have, are also not exempt. Second vehicles, second homes, cash, investments and bank accounts are not exempt either.

Second, let us look at what is exempt. Your car -- up to a limit -- will be considered exempt. Reasonable amounts of personal clothing, household furniture, household goods, household appliances and jewelry (up to a limit), will generally be exempt from liquidation. Retirement pensions, part of the equity in your home, tools for your profession, part of your unpaid wages, personal injury damage awards and public compensation benefits are also protected in most cases.

Chapter 7 bankruptcy proceedings can be complicated and difficult to navigate alone. For this reason, many people seek help from a qualified bankruptcy attorney who can help them strategically navigate the bankruptcy process.

Source: FindLaw, "Exempt vs. Non-exempt Property Under Chapter 7," accessed Nov. 25, 2015

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