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Exemption Laws

Filing Chapter 7 bankruptcy automatically creates a bankruptcy “estate”, which consists of all legal or equitable interests of the debtor in real and personal property on the date of the bankruptcy filing. The estate also includes the following property that you acquire or become entitled to acquire within 180 days after filing bankruptcy: an inheritance, property you receive or are entitled to receive from a marital settlement agreement or divorce decree, and death benefits or life insurance proceeds.

The bankruptcy estate temporarily becomes the owner of all the debtor’s real and personal assets. The estate is controlled by a bankruptcy trustee, whose job is to review the assets and financial affairs of the debtor and to liquidate (sell) any non-exempt assets for the benefit of the debtor’s unsecured creditors.

“Exempt” assets are protected by law and are off-limits to creditors and the bankruptcy trustee. Such assets are not subject to liquidation. In most Chapter 7 cases filed by individuals (consumer cases), all assets are exempt and the debtor retains all assets. If all the debtor’s assets are exempt or subject to valid mortgages or other liens, the trustee will file a “no asset” report with the bankruptcy court. In such case, there is no distribution to unsecured creditors and all or most of the debtor’s debts will be discharged (legally forgiven).

In order to retain exempt assets when a debtor files Chapter 7 bankruptcy, the debtor must claim each asset as exempt on Official Form 106C (Schedule C: The Property You Claim as Exempt) and cite the specific applicable state or federal law which exempts each asset.

The U.S. Bankruptcy Code contains a list of suggested bankruptcy exemptions, known as the “Federal Bankruptcy Exemptions”. However, the Bankruptcy Code allows individual states to opt out of using the Federal Bankruptcy Exemptions and to instead enact their own exemption laws that debtors must use when filing bankruptcy in that state. All but 19 states have opted out of using the Federal Bankruptcy Exemptions. The “opt out” states require debtors to use state bankruptcy exemption laws when filing bankruptcy in that state.

The following states currently give debtors a choice between using the Federal Bankruptcy Exemptions and the state law exemptions:  Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin.

Links to bankruptcy exemption laws for each state are listed below:

Alabama                                                  
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
D.C.
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming