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Exemptions in a Chapter 7 bankruptcy

On Behalf of | Feb 27, 2024 | Chapter 7 Bankruptcy

Knowing that you’re in debt and being unable to afford making those payments can be challenging. Once you realize that payments just aren’t going to happen may lead to you exploring bankruptcy. 

Chapter 7 bankruptcy is one type that some people consider. This is often dubbed the “liquidation bankruptcy,” but that name is somewhat deceptive. All assets are classified as either exempt or non-exempt based on applicable laws. 

Liquidation doesn’t always happen

In order to file a Chapter 7 bankruptcy, you have to meet the requirements set by Connecticut law. One of these is that you must pass the means test, which means there are income limits based on income, household size and the median income for your area. Generally, individuals who pass the means test don’t have enough assets to warrant liquidation. 

The bankruptcy trustee determines if liquidating assets will make a big enough impact on the debts to be worth the effort and expense of liquidation. In the unlikely event that there are enough assets to liquidate, there are some that are automatically exempt from liquidation. In Connecticut, these include:

  • Up to $75,000 of home equity for a single person or $150,000 for joint filers
  • Up to 75% of weekly wages
  • Up to $3,500 in motor vehicle equity
  • All tools of the trade
  • Most retirement plans and pensions
  • Unlimited personal property of specific items, such as food, clothes, wedding and engagement rings, appliances, clothing, furniture and more

Understanding how filing bankruptcy will impact your life is critical before you file. Working with someone familiar with these matters is beneficial so you know exactly what responsibilities and benefits you’ll have.