A Quick Lesson in Bankruptcy Exemption Allowances

A Quick Lesson in Bankruptcy Exemption Allowances The information contained in this article is solely intended to increase the skills of paralegals and other legal staff who are employed virtually or non-virtually by bankruptcy attorneys. Exemption allowances in bankruptcy are the amount of money for specific assets allowed by the law for a debtor to keep when filing bankruptcy. During the early years of the United States and up until the mid 1800s, a person could be sent to prison for failing to pay their debts. Not only was the debtor expected to come up with the money to pay back what they owed, but they also had to pay for their imprisonment! However, the government learned this could no longer be done because it was causing great upset to their economic system. In 1833 the practice of imprisonment for debts was eliminated at the federal level and exemptions were born and written into the bankruptcy law. To help illustrate, below is an example of a typical exemption allowance: Presently, in Ohio, the exemption allowance for a piece of real estate is currently $10,000; but in Texas and Florida there is no limit. So if John Doe owned a home with a value of $100,000 but he only owed $50,000 on it, that means that John has $50,000 in equity. If John lived in Ohio, he would only be allowed to deduct $10,000 from the $50,000, thus leaving him $40,000 in unexempt equity. The $40,000 may be required to be paid by John and the money distributed to the companies he owes money to if he is filing a Chapter 7. However, if John lived in Texas or Florida, he could have $1 million in equity and the entire amount would be exempted in a Chapter 7. The moral to this story is that exemption allowances will vary from state to state, and sometimes, district to district within the same state. It is important for anyone working in bankruptcy law (creditor or debtor) to keep updated on exemption allowances for the states they prepare bankruptcy petitions for. Also, it is equally important to establish an open communication between yourself and the attorney you are working with. Never assume anything. Gather up questions for your attorney as you are working on bankruptcy petitions. Then schedule a time you can talk with your attorney about the case. During that time, ask your questions about exemptions or other areas of the law so you can understand how to prepare better petitions for him or her in the future. If you are afraid to talk with your attorney freely and ask them questions, you need to look for another job. The lives of hard working consumers are at stake. If you do not explore all possibilities of the direction a case could take, you are not providing the high level of detail you should be providing to those consumers who depend on the attorneys expertise. Additionally, any attorney will agree that it is better to ask a question and get the right answer now, than to let the mistake go through and cause the attorney possible sanctions and additional problems at court.