When you declare chapter 7 bankruptcy, you may understand that in return for having the vast majority of your debts forgiven, you must surrender your personal property so that the bankruptcy court can re-pay some of your debt. You will be allowed to keep some of your property, however, and these provisions are called exemptions. Read on for more information about exemptions and how they affect your chapter 7 bankruptcy case.

Each state has their own specific exemption rules, so you can check here to see how each state handles exemptions. Some states allow you to chose between federal exemptions or that state's exemptions. In these cases, you must choose one or the other, not a mixture of both.

Can You Keep Your Home?

States usually employ a homestead exemption in an effort to allow you to keep your home. As with most homesteading rules, you must reside in the home full time, so rental properties and vacation homes would not be exempted. The homestead exemption amount reduces your equity amount.

For example, if your home is worth $250,000 and your homestead exemption for your state allows you $25,000, your home's adjusted worth would be $225,000. If you owe more than the adjusted amount on your mortgage, you can keep your home. Some states allow married couples filing for joint bankruptcy to double up on their homestead exemptions, so in the above example the adjusted value would be $200,000, thus allowing you a greater chance of keeping your home. Home equity lines of credit loans are considered (second) mortgages for the purposes of evaluating the adjusted equity.

The determination of whether or not you can keep your home is related to how much equity you have built up, in other words the amount of the mortgage minus the value of the home. If you own a property worth $250,000 and you only owe $50,000 more on the mortgage, the bankruptcy trustee could seize your home and sell it to help pay your debts. Keep in mind that the amount of your bankruptcy debt is an important factor in whether or not they decide to seize your home.

Can You Keep Your Personal Property?

Households good such as furniture, tools, and artwork are usually exempt, unless you have very valuable belongings. Resale value for common household goods is very low, so it's unlikely to be of interest to the bankruptcy court.

Every state has very specific rules that must be followed in regard to exemptions, with additional provisions for  vehicles, wildcard exemptions, work-related property, bank accounts and retirement accounts, so a careful interpretation by a bankruptcy attorney like Michael D Hart PC is vital to help you determine what you may keep.