If you are thinking about filing for bankruptcy, you may be facing a genuinely difficult decision. Thankfully, understanding your rights and protections can ease this uncertainty one way or another.
One of the most common questions people have when considering bankruptcy is: “What can I keep?” In Tennessee, both federal and state laws offer exemptions that will allow you to protect certain assets from creditors during bankruptcy. These exemptions apply differently in Chapter 7 and Chapter 13 filings, and knowing what’s protected can help you make informed decisions.
Chapter 7 vs Chapter 13 exemptions
In a Chapter 7 bankruptcy, particularly valuable non-exempt assets may be sold to pay off your creditors, but many people find that most or all of their property is protected by exemptions. Tennessee allows bankruptcy filers to use either the federal exemption system or the state system, but not both. Choosing the most advantageous set of exemptions is an important strategic decision that you’ll want to consider carefully with your legal team if you are eligible for Chapter 7 bankruptcy protections.
For example, under Tennessee’s state exemption laws, you may be able to protect the following in a Chapter 7 case:
- Homestead: Tennessee allows a homestead exemption of up to $5,000 for a single filer, $7,500 for joint owners and up to $25,000 if you have minor children in your household. Older or disabled individuals may qualify for even higher limits.
- Personal property: You can protect up to $10,000 worth of personal property such as furniture, clothing and appliances. Tools of the trade may be protected up to $1,900.
- Vehicle: Tennessee does not have a specific vehicle exemption, but you may use your personal property exemption to protect equity in your car.
- Wages and benefits: Social Security, veterans’ benefits, pensions and unemployment compensation are generally exempt. Some limitations may apply based on the source and amount.
- Wildcard: In some cases, filers can apply unused portions of other exemptions toward assets not otherwise covered.
Federal exemption opportunities do not mirror state law, so it’s important to evaluate both before committing to a particular approach.
In a Chapter 13 bankruptcy, exemptions still matter—but in a different way. Instead of potentially liquidating non-exempt assets, Chapter 13 involves a repayment plan lasting three to five years. Your repayment amount is partially based on the value of your non-exempt property. The more you have in non-exempt assets, the more you may be required to repay to unsecured creditors over time. This means that even if you can’t fully exempt certain property, Chapter 13 allows you to keep it by agreeing to repay a portion of your debt under court supervision. This can be a favorable option for those with valuable assets they don’t want to risk and that aren’t covered by Chapter 7 exemption amounts.
Choosing between Chapter 7 and Chapter 13, and determining which exemption system to use, can be challenging. Seeking personalized legal guidance is a great way to get started.