The general rule is that assets that are considered necessities are exempt from creditors. Exempt assets are often those which are under a certain value.
However, the exact rules vary from state to state. Be aware that even exempt assets are at risk of being taken.
Assets which are exempt from creditors are typically clothing, essential household furnishings, the house, and cars.
Medical equipment is also exempt from being seized. Certain electronics which are considered essentials are also generally exempt. For example, you’re likely to be able to keep a smartphone.
These exemptions only apply when the asset is below a certain monetary value. The specific assets that are exempt will vary from state to state, but they do follow the same general principles.
There are three main types of exemptions. The first is property up to a specific value. This refers to an asset that has a worth below that of a set dollar amount. The amount is decided by the state.
Assets are also protected if selling them wouldn’t raise enough money to pay back what you owe, and maintain the dollar exemption.
For example, if you owned a car that was worth $5000 and the state had a $5000 exemption, you would be able to keep the car.
However, if the state had a $1000 exemption, and you had a debt of $4000, you would be required to sell the car.
The second type of exemption is for specified property. In this case, certain assets are exempt from creditors regardless of their value. Again, the assets this covers is variable, but they are generally household necessities.
The third exemption is a wildcard exemption. This refers to a specified dollar amount that can be applied to a property of any kind.
By using a wildcard exemption, an asset becomes exempt from creditors. The actual amount and rules of application are decided by each state.
A wildcard exemption of $5000 can be used to protect an asset such as a car. However, if the car only had a value of $1000, that exemption can be split. That way, the car is exempt, as is any other asset up to $4000.
Secured property is still at risk if you’re making continuing payments towards it. If a creditor has a lien on a property to secure payment, then even exempt assets can be repossessed should you fall behind.
Although there are set rules regarding exempt and non-exempt assets, the reality is that they are variable. Assets that are exempt depend not only on the laws of the individual state, but also on a case by case basis.
Your personal circumstances will be taken into consideration, as well as what you owe. While you’re likely to be allowed to keep any necessities, it will be based on what they’re worth, the debt you’ve built up, and what other assets you possess.
Non-exempt assets can be argued for, and exempt assets can be argued against.
Certain essential funds are exempt from being seized by creditors. While some people assume that once a creditor has a judgment anything can be collected, this isn’t true.
Regulations such as the Fair Debt Collections Practices Act are put in place to protect certain assets and funds.
The Fair Debt Collections Practices Act (FDCPA) is a consumer protection act established to ensure that certain assets are exempt from creditors. The assets protected are those that are necessary for a basic standard of life.
Primarily, any government provided benefit is protected from creditors. This includes Veteran’s Assistance, disability benefits, worker’s compensation, social security, and unemployment benefits. These cannot be seized to pay off a debt.
Similarly, a protected retirement fund is exempt from creditors. This refers to funds that are secured in pensions, IRAs, or 401ks.
A certain amount of earned income can also be protected from creditors. In any case, only a small amount can be garnished – up to 25% can be collected by a creditor to pay off a debt.
For a person working on or around minimum wage, an argument can be made against garnishing the wage at all. The amount required as living expenses will be taken into account as necessary.
A similar exemption can be used to protect a bank account. If the savings are required for a basic cost of living, it’s exempt from creditors.
In general, the funds that are exempt are those which are considered necessary. Any payments received or money saved can be protected if they’re essential.
While many of these exemptions are standard, personal circumstances will also be taken into account. Laws are also variable from state to state.
The funds that are required to be exempt are those which are essential, but arguments can be made for non-exempt funds.