Bankruptcy Basics: What Is An Exemption And Why Should You Care?
By Karen Oakes, Southern Oregon Bankruptcy Attorney on Sep 15, 2007 in Bankruptcy Practice and Procedure, Benefits of Bankruptcy, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, General Bankruptcy Information, Oregon, State Specific Bankruptcy Issues
A debtor is allowed to protect certain property (aka “assets” or “the things that you can say: This is MINE”) from creditors trying to take that property. The amount of the protection available is determined by either federal law (like the Bankruptcy Code) or state law. The right to protect is called an “exemption“. Exemptions can apply to real property (real estate), personal property (for example, clothes, car, furniture, dogs, cats), or intangible property (the right to receive payments, a license that has value), depending on where someone lives and what the state has decided about the U.S. Bankruptcy Code exemptions (some states have adopted their own exemption laws and have “opted out” of the federal exemptions).
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 threw an extra twist into the mix for those states with their own exemptions. Under the 2005 Act, in order to claim an exemption under Oregon law, the debtor must have lived in Oregon for at least 730 days before filing for bankruptcy in Oregon. If the debtor has not lived in the state for 730 days, they must use the exemptions of the state where they were living before moving to Oregon, IF they lived there for at least 730 days. Well, what if that state says a debtor cannot use their exemptions unless the debtor lives there (and the Debtor remember is now living in Oregon), OR the state has adopted the federal exemptions under the U. S. Bankruptcy Code? Well, the debtor then gets to use the federal exemptions even though residents of Oregon are not allowed to use those exemptions.
If the value of the debtor’s asset(s) is more than the amount provided for in the exemption, the trustee assigned to the case can liquidate (take and sell it or turn it in to cash somehow) and the value that was covered by the exemption gets returned to the debtor. If the item is securing a debt, the secured creditor also has an interest in the property.
The exemption issue and the new rules are part of the complications that can make a bankruptcy case difficult to handle without an attorney. And picking the wrong exemption or relying on the wrong amount can cost a unwary debtor money or the loss of an asset.
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