Bankruptcy is a legal process that allows people or businesses that can no longer pay their debts to either eliminate them or repay them under the protection of the bankruptcy court. When filing for bankruptcy, a debtor is often allowed to keep certain assets up to a particular value. These assets are called ‘exemptions’. Whether you’re contemplating bankruptcy or debt settlement near me, in this comprehensive guide, we’ll explore the bankruptcy exemptions specific to the state of Tennessee.
What Are Bankruptcy Exemptions
Bankruptcy exemptions are a set of laws that determine which assets, or a certain amount of a particular asset, a debtor is allowed to keep during bankruptcy proceedings. These laws vary from state to state but generally include things like a portion of the equity in the debtor’s primary residence, a vehicle for transportation, necessary clothing, household goods, and tools or equipment required for the debtor’s profession. The aim of these exemptions is to prevent debtors from becoming destitute as a result of bankruptcy and to ensure they have the basic necessities to start over. These exemptions can be used in Chapter 7 and Chapter 13 bankruptcy.
Tennessee Bankruptcy Exemptions
Tennessee has its own set of bankruptcy exemptions that are used to protect debtors’ properties. Here are some of the key exemptions under Tennessee law:
1. Homestead Exemption
In Tennessee, you can exempt up to $5,000 in the value of your home or other property covered by the homestead exemption. If you’re a joint owner of the property, the exemption increases to $7,500. If you’re over 62 years old, the exemption amount is $12,500, and it increases to $20,000 if both spouses are over 62 and one is disabled.
2. Personal Property Exemption
Tennessee allows you to exempt up to $10,000 in total value of all personal property. This includes clothing, appliances, books, animals, crops, musical instruments, family portraits, and heirlooms. The exemption also covers health aids necessary for work or health.
3. Motor Vehicle Exemption
Tennessee law provides a motor vehicle exemption of up to $2,000. This means you can protect up to $2,000 of equity in your car, truck, motorcycle, or another vehicle.
4. Tools of Trade Exemption
If you have tools, books, or other equipment that you use in your trade or profession, you can protect up to $1,900 in total value.
5. Wildcard Exemption
Tennessee offers a wildcard exemption of $10,000 that can be applied to any property, including property that exceeds the limits of other exemptions. This can be especially useful if you have significant equity in your home or other property that exceeds the standard exemption limit.
6. Retirement Accounts and Pensions
Most tax-exempt retirement accounts are fully exempt in Tennessee, including 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans. Traditional and Roth IRAs are exempt up to $1,283,025.
How to Use Tennessee Bankruptcy Exemptions
1. Identify Your Exempt Property
The first step is to identify which of your properties are exempt. In Tennessee, you can exempt your house, retirement account, personal property, motor vehicle, and most other assets. It’s important to note that an exemption limit applies to any equity you have in the property. Equity is the difference between the value of the property and what you owe on it.
2. Use the Wildcard Exemption
In Tennessee, you can use the wildcard exemption to exempt any personal property of your choosing (no real estate), cash, and funds in a bank account up to a specified limit. This “wild card” exemption can be applied toward any type of property the filer chooses. You can exempt up to $10,000 in any personal property using the wildcard exemption.
3. Apply the Homestead Exemption
The homestead exemption allows you to exempt a certain amount of equity in your primary residence. The amounts are $5,000 for a single filer, $7,500 for a married couple, and $25,000 for a filer with a minor child dependent.
4. Use the State Exemptions
Tennessee law requires you to use the state exemptions, except in certain circumstances. Unfortunately, Chapter 7 bankruptcy petitioners in Tennessee are limited to state exemptions and are not permitted to choose the federal option.
5. Consult a Bankruptcy Attorney
Bankruptcy law can be complicated, and each individual’s situation is unique. An experienced bankruptcy attorney can help you navigate the process and ensure that you’re using your exemptions in the most beneficial way.
Remember, while bankruptcy exemptions allow you to keep certain property in bankruptcy, they do not make liens go away. If the property is secured by a lien, you will generally still have to pay the debt associated with the property.
Before deciding to file for bankruptcy, it’s important to explore all your options. Bankruptcy should be considered a last resort, and there may be other debt-relief options available to you.
Conclusion
Understanding Tennessee bankruptcy exemptions is crucial when considering filing for bankruptcy. These exemptions can significantly impact what assets you can keep and how much of your debt you can discharge. It’s always recommended to consult with an experienced bankruptcy attorney to guide you through the complex bankruptcy process and help you take full advantage of the bankruptcy exemptions available to you in Tennessee.
Remember, bankruptcy should be considered a last resort, and it’s important to explore all your options before deciding to file. If you’re struggling with debt, reach out to a financial advisor or credit counselor to help you navigate your situation.
FAQs
What are Tennessee bankruptcy exemptions?
Tennessee bankruptcy exemptions are specific assets or property that the bankruptcy law allows you to keep when you file for bankruptcy. These include certain amounts of equity in a home or motor vehicle, some personal property, and specific benefits or pensions.
How does the homestead exemption work in Tennessee?
In Tennessee, an individual can exempt up to $5,000 in property or $7,500 for a joint couple filing together. If the individual is 62 or older, the exemption amount increases to $12,500 or $20,000 for couples where both are 62 or older.
Can I use federal bankruptcy exemptions in Tennessee?
No, Tennessee is an opt-out state which means you must use the state exemptions rather than the federal ones when filing for bankruptcy.
What is the motor vehicle exemption in Tennessee bankruptcy?
In Tennessee, the motor vehicle exemption allows you to exempt up to $2,000 of equity in your car or other vehicle.
What are the wildcard exemptions in Tennessee bankruptcy?
The wildcard exemption allows you to protect up to $10,000 in any property of your choice if you do not use the entire homestead exemption.
What type of personal property is exempt from Tennessee bankruptcy?
Some personal property that can be exempted includes clothing, family portraits, school books, and a burial plot. There is also an exemption for $5,000 worth of other personal property, or $10,000 for a married couple filing together.
How do pension and retirement accounts factor into Tennessee’s bankruptcy?
Most tax-exempt retirement accounts—including 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans—are protected in Tennessee bankruptcies.
What about life insurance or annuity contracts in Tennessee bankruptcy?
In Tennessee, a debtor can exempt the cash surrender value of life insurance policies, and annuity contracts if the beneficiary is a spouse or child.
Are there any exemptions for wages in Tennessee bankruptcy?
Under Tennessee law, 75% of earned but unpaid weekly disposable earnings or 30 times the federal hourly minimum wage, whichever is greater, is exempt from garnishment.
What happens if I have a property that exceeds the exemption limit in Tennessee?
If you have a property that exceeds the exemption limit, the bankruptcy trustee can sell the property, pay you the exemption amount, and use the rest to pay off your debts.
Glossary
- Bankruptcy: A legal process that provides relief to individuals or businesses who can’t pay their debts.
- Exemptions: In bankruptcy, these are the properties or assets that are protected from being seized by creditors.
- Chapter 7 Bankruptcy: A type of bankruptcy that involves the liquidation of non-exempt assets to pay off creditors.
- Chapter 13 Bankruptcy: A bankruptcy plan where the debtor repays their debts over a period of 3-5 years.
- Trustee: An individual appointed in a bankruptcy case to manage the debtor’s assets.
- Creditor: A person or institution to whom money is owed.
- Debtor: A person or institution that owes money.
- Equity: The value of a debtor’s property after all debts and other obligations are paid off.
- Liquidation: The process of selling off a debtor’s non-exempt assets to repay creditors.
- Federal Bankruptcy Exemptions: A set of national standards for what property is exempt in bankruptcy.
- Tennessee Bankruptcy Exemptions: Specific to Tennessee, these are laws that outline the property that can be kept after filing for bankruptcy.
- Homestead Exemption: The laws that protect some or all of the equity in a debtor’s home from creditors.
- Personal Property Exemption: These exemptions protect various types of personal property, like clothing, furniture, and cars, from being seized in bankruptcy.
- Wage Exemption: This exemption protects a certain portion of the debtor’s income from being seized by creditors.
- Wildcard Exemption: A flexible exemption that can be applied to any property, typically used when other specific exemptions don’t fully cover a debtor’s property.
- Automatic Stay: An order that stops most collection efforts, lawsuits, and wage garnishments against the debtor.
- Discharge: The final order that releases the debtor from personal liability for certain types of debts.
- Insolvency: The state of being unable to pay off one’s debts.
- Means Test: A calculation used to determine if a debtor is eligible to file for Chapter 7 bankruptcy.
- Bankruptcy Court: A specialized court that deals with bankruptcy cases. This is where all proceedings and decisions related to bankruptcy are made.
