Going or Being Made Bankrupt in U.S.: Federal and State Personal Property Bankruptcy Exemptions.

Bankruptcy is simple enough to implement but what personal property is excluded from bankruptcy?.The answer to this key question highlights a conflict between state and federal legislation; some states allow the homestead/ family home to be exempt while other states prohibit the application of federal exemptions by imposing state only conditions. This incoherent situation makes some U.S. States more attractive to live and work because they are biased towards preserving the family home and supporting family relationships. Whilst in some other states a family who has the same circumstances are made homeless without any chance of recourse when they are living through their most difficult phase precipitated by unemployment or making an unwise decision.

Why are there Personal Property Exemptions in Bankruptcy Laws?.

The approach that the state and federal bankrupcy law makers have adopted is to rehabilitate the borrower by implementing a repayment plan that either makes a full or partial settlement of debt owed to creditors. And so by adopting an approach that attempts to rehabilitate the borrower/ debtor is allowed to keep certain types and values of property that are called exemptions instead of liquidating the persons entire estate that would have included the homestead, pensions, investments and many personal belongings; making the person destitute. Exemptions are designed in most states to avoid a circumstance of people becoming reliant on government assistance after they are declared bankrupt so that still have some basic means of doing their job and having living accommodation; although the latter varies from state to state.

If the homestead is affected by bankruptcy it may be worth putting the ownership into a Common Tenancy form of ownership (enquire of mortgage provider) to divide the equity between the debtor and spouse or marital partner to minimise the impact of creditors on the family home.

Federal Bankruptcy Exemptions

Some U.S. States follow the Federal bankruptcy statue which lists allowable personal property exemptions but federal law allows a state to legislate their own exemptions which has resulted in 35 U.S. States prohibiting debtors from adopting federal exemptions. So the exemptions that a person is entitled does in many cases depend upon the state where a person has permanent residence.

Here is a list of the federal bankruptcy exemptions:

The list shown below, which is a sample of 13 states, shows the different ways some states treat bankruptcy and how they interface with Federal Bankruptcy laws.