“Exempt Property” refers to any property that can’t be claimed by creditors in order to satisfy the borrower’s debts. Any other property that can be reached by creditors is called “non-exempt” property. The definition of exempt and nonexempt properties may be different for each state.
A common situation involving exempt property is where a home owner has failed to keep up with mortgage payments. If the debt gets serious enough, the lender may file a lawsuit against the borrower in attempts to possess their assets for the debt repayment. In such a suit, the creditor can’t collect exempt property (which usually includes household items and the house itself). On the other hand, they may be able to place a lien on the non-exempt items.
One of the most common applications of exempt and non-exempt property classifications is in a Chapter 7 liquidation bankruptcy case. In a Chapter 7 claim, the debtor may be required to forfeit some of their property so that it can be sold, with the proceeds going towards their debt payments. In these cases, certain property will be classified as non-exempt and other properties as exempt (also known as “bankruptcy exemptions”).
Again, non-exempt property can usually be claimed by a creditor. Some examples of non-exempt property for Chapter 7 purposes are:
- Cash, bank account funds, and securities like stocks or bonds
- Valuable items like coin or stamp collections and antiques
- Musical instruments (unless the debtor is a musician by profession)
- Second homes or vacation property
- Second cars, trucks, and other motor vehicles
Examples of Exempt Property include:
- Necessary items like clothing, furnishings, and household goods/appliances (up to a reasonable amount)
- Some motor vehicles, up to a specified value
- Jewelry, up to a specified value
- Tools or instruments of the person’s trade, up to a certain amount
- Some unpaid earned wages
- Benefits such as social security, welfare, unemployment, if held in a bank account
It may be the case that a creditor attempts to claim a debtor’s exempt property. This frequently occurs as a result over the classification of property as non-exempt. In such cases, the debtor will need to prove that property is in fact exempt and that the creditor has no claim in it.
This can be confusing at times, for example if the value of a particular item can’t be determined easily. It may also involve a complex analysis of the property and bankruptcy laws specific to the debtor’s jurisdiction. If the debtor is successful, they may be able to obtain a court ordered injunction requiring the debtor to cease their collection efforts. If the debtor has caused them losses, they may even be able to obtain a damages award for reimbursements.
Any situation involving debt can be fairly complicated for the average person. If you have any disputes or legal issues involving your exempt property, you may need to hire a lawyer for advice. A competent bankruptcy attorney will be able to assist you filing your claim, and can inform you regarding bankruptcy exemptions. Your lawyer can also represent you if a lawsuit arises over your property.