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What's a bankruptcy exemption?

 

One of the more confusing aspects of a bankruptcy is the use of exemptions. Since the purpose of a bankruptcy is to either provide you with an immediate "fresh start" by a Chapter 7 or help reorganize your debts via a Chapter 13, the Bankruptcy Act recognizes that you need some property to maintain your life.

Even a Chapter 13, which requires that you make all of your disposable income available to repay your debts, first allows you a budget of "necessary" expenses, which allows you to maintain a residence, keep food on your table and put gas in your car. The code also provides exemptions, which allow you to retain a portion of your assets. The exemptions keep property out of the bankruptcy estate and protect it from creditors or the trustee.

 

In Wisconsin, as with some other states, you have to make a decision as to which type of exemptions you will use. There are Wisconsin exemptions and there are federal exemptions. Your bankruptcy attorney can describe the assets they cover, and help you choose between the two types.

It is important to note that when you choose your exemptions, you have to accept all of the exemptions, as you are not allowed to use a few state and a few federal. The language used in the statutes can be confusing, so most individuals can benefit from having an attorney walk through the exemptions, to ensure that you make the most effective choice.

Because the amounts allowed vary, and may change every year, it is necessary to compare exemptions and make the decision based on your current mix of assets and the amounts allowed at the time of filing.

The key to a successful bankruptcy is working through each element of the filing with your attorney and making certain you have chosen the options that best fit your particular facts and financial situation. 

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