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Understanding the wild card exemption for Chapter 7

When you file Chapter 7 bankruptcy, the bankruptcy trustee is tasked with liquidating many of your assets and using the funds raised to make payments to your creditors. But that doesn't mean you give up everything you own to pay off debt -- the point of bankruptcy is to help you get out of the debt situation while also leaving you in a viable situation for the future. As such, the courts provide exemptions that let you keep certain personal items, a vehicle necessary for daily life and traveling to school or work, and, often, your home.

But exemptions don't always cover everything that might be near and dear to you. For example, you are allowed to keep certain personal items of jewelry, but that is often limited by a dollar amount. What if your wedding rings exceed the exemption value? Or, perhaps, you have a family heirloom that you want to keep.

That's where the wildcard exemption comes into play. The federal bankruptcy court allows a wildcard exemption up to a certain amount -- currently a bit over $1,000 -- that can be applied to cover anything you want. So, if you have a piece of jewelry worth $1,800 but only $1,200 in jewelry exemptions, you can use your wildcard exemption to make up the difference.

Note that these exemptions are most applicable in the case of a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, individuals work with the bankruptcy court to create a debt repayment plan. Because debtors are able to make some type of payment to creditors, they are able to keep more of their property.

Bankruptcy, and all the details involved, can become complex. Working with a legal professional ensures you understand your options so you can make the best possible decisions for yourself and your family.

Source: People, "What Is the Wild Card Exemption When Filing Chapter 7 Bankruptcy?," accessed Feb. 10, 2016

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