Federal Bankruptcy Exemptions

The allowance for bankruptcy exemptions under applicable federal and state laws forms the basis upon which property is retained when filing Chapter 7 bankruptcy. Despite the prevalence of misinformation, bankruptcy exemptions also play an import role for conformation of Chapter 13 plans. The best efforts test requires, as a condition precedent for confirmation, that creditors potentially recover at least as much under the proposed plan as could be liquidated under Chapter 7. For current federal exemptions and categorical amounts, see Federal Bankruptcy Exemptions under Section 522 of The Code.

State Bankruptcy Exemptions

All debtors in Chapter 7 may choose state bankruptcy exemptions provided by the law of the state in which they resided for the last 2 years. All state bankruptcy exemptions are different. In a few states, the state legislatures additionally allow debtors to optionally choose the federal bankruptcy exemptions in lieu of state law bankruptcy exemptions. These states are known as Opt-In states.

Most states force resident to choose only among the state bankruptcy exemptions. These states are known as Op-Out states. An exception is provided by the federal Code however, in circumstances where the debtor has not lived within the state during the last 2 years. In this event, the federal exemption list may be elected.

Values, doubling for spouses, the extent of proceeds from sale are exempt, and qualification requirements for all state bankruptcy exemptions develop independently. Gross disparity in values and procedures reflect each state's assessment of necessity and bias when balancing competing interests between debtors and creditors.