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What are Chapter 7 bankruptcy exceptions?

On Behalf of | Dec 27, 2022 | Chapter 7 Bankruptcy

A lot of people are scared to file bankruptcy – particularly Chapter 7. Long known as a “liquidation bankruptcy,” people often have images stuck in their head from movies and television shows where deputies carry off every last stick of furniture and item that someone owns after they file.

The reality is far different. The vast majority of people who file for Chapter 7 bankruptcy have nothing to lose but a pile of unsecured credit card debts and old medical bills. Those who do have something they want to protect may very well find that the thing they’re worried the most about is already covered under one or more bankruptcy exemptions.

Exempted property is automatically protected from creditors in bankruptcy cases

Every state does things a little different, but North Carolina law allows those who file for bankruptcy to exempt $35,000 worth of equity in their primary residence, which doubles to $75,000 for couples who file. (Single filers over 65 years of age can sometimes exempt $60,000 in equity.) For many filers, this is enough to make sure they do not lose their homes in bankruptcy.

In addition, exemptions can protect:

  • $3,500 of equity in your car (most of the time)
  • $7,000 of household furnishings and personal items
  • Most retirement accounts, including 401k, IRAs and the like
  • The tools you use (up to $2,000 in value) for your trade or business
  • Many different life insurance policies


And that’s all just for starters. There are quite a few other property exemptions that are available, depending on your exact situation.

It’s also important to note that bankruptcy exemptions don’t just apply to your assets. Your income, too, may be considered protected. For example, neither Social Security benefits, unemployment nor workers’ compensation benefits can be used to repay any of your debts in bankruptcy.

In short, any fear you may have about filing for bankruptcy may be deeply misplaced. If your debts are overwhelming, it may be time to find out the truth about how bankruptcy works.



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