What are Bankruptcy Exemptions?

Posted on Mar 29, 2013 By Carla M. Handy


An exemption is simply the value of certain property that state or federal law says, no matter what, no creditor can get to.  Each state enacts its own exemption laws or a state can decide to have the federal exemption laws apply within its borders.  Regardless, every state provides protection for a certain amount of real or personal property owned by its citizens against the claims of creditors.

Homestead Exemption

One example is the homestead exemption.  The homestead exemption protects a specified amount of the value of the personal residence owned by an individual.  In Alabama, the homestead exemption is $5,000.00 for each individual who is an owner of the personal residence.  Contrast that with the homestead exemption in the State of Florida which protects the entire value of an individual’s personal residence, no matter how great, against the claims of a creditor.

Personal Property Exemptions

Another example is the personal property exemption.  Any property owned by a person that is not real estate constitutes personal property.  The personal property exemption will protect property as varied as household good and furnishings, bank accounts or proceeds from a lawsuit for personal injury resulting from a car wreck.  The personal property exemption in Alabama is $3,000.00 per person.  However, for clients filing for bankruptcy in the State of Tennessee, a $10,000.00 exemption can be claimed in personal property.  As you can see, exemption amounts can vary widely from state to state.  There are some categories of property, however, that are entitled to complete protection no matter what the total value may be.  One example of this is social security benefits including both monthly benefits and any lump sum awards for social security disability.  Another example is an IRS qualified retirement vehicle or account, including 401Ks and IRAs.

Exemptions, and the claiming thereof, can be an extremely important part of any bankruptcy filing and why it is a good idea to seek advice from a bankruptcy attorney who can insure you receive the benefit of all protection provided under the Bankruptcy Code.  If you are considering a filing for bankruptcy relief and wish to consult with a qualified bankruptcy attorney about your options, please contact one of our locations nearest you in Alabama, Mississippi or Tennessee for a free, confidential consultation.