By Damon Duncan
You may hear your bankruptcy lawyer refer to protecting the equity in your assets by using exemptions. Exemptions are generally state-specific laws that are broken down into various categories. Each category is given a certain dollar amount, and that is the amount that can be used to protect any property that falls into that category.
For example, most states have a “household goods and furnishings” exemption that is used to protect your furniture, clothes, pictures, books, etc. The laws only give you a certain dollar amount to protect all of your household goods and furnishings, but for most people, the dollar amount is plenty and they do not have assets above and beyond the given dollar amount.
Another commonly used exemption is the “motor vehicle” exemption. This is the exemption that is used to protect the equity in your vehicle. Again, there is a cap on the amount that can be used. In North Carolina, the motor vehicle exemption on the date of this post is $3,500 per person. This is the amount that can be used to protect equity that you have in your vehicle.
For your home, the homestead exemption is used to protect any equity in your home. The homestead exemption cannot be used on a property where you do not live. In other words, if your home does not have any equity in it, but you own a second piece of property (a rental house, for example) with a lot of equity, you cannot use the homestead exemption on the rental house if you do not live in the rental house.
In order to prevent people from moving from one state to another just to receive the benefit of a certain state’s exemptions, the bankruptcy law requires you to use the exemptions of the state where you lived exactly two years prior to the date of your bankruptcy filing.
The bankruptcy law and the state exemptions can be confusing, so it is important to talk to your bankruptcy attorney if you have any specific questions about how the exemptions will have an impact on your bankruptcy case.