In a bankruptcy proceeding, exemptions refer to property of the debtor which is beyond reach of creditors or the bankruptcy trustee. The Bankruptcy Code allows each individual who files bankruptcy to keep basic assets which are considered necessary for the debtor’s “fresh start” after bankruptcy. This property is the debtor’s “exempt property”.
Property that can be legally exempted from bankruptcy proceeding are determined by state and federal statutes, and therefore, vary from state to state. To use the exemptions of a particular state the debtor must have lived for two years in the state in which s/he is filing bankruptcy. If the debtor has not lived in the state for 2 years, then the exemptions of the state in which s/he lived in the six months beyond the two year period apply. If no state’s exemptions are available, federal exemptions apply to the debtor.
When a debtor files for bankruptcy, a schedule specifying properties that are to be exempted is filed along with the application for bankruptcy. If the creditors have no objections, the property becomes part of the debtors exempted property. Exempt property is then no longer property of the bankruptcy estate and is therefore, not subjected to bankruptcy proceedings.
Generally, used household goods and personal belongings which have little resale value, pension rights and retirement plans are included in exempted property. The point for maintaining the exempted property is to help the debtor to get a fresh start. This is possible only if the debtor has something to start with.