The idea of bankruptcy can make some people apprehensive. While the bankruptcy process offers hope of eliminating debt through a discharge, it is also possible to lose assets if the bankruptcy calls for liquidation. This is why state law allows people to exempt some property from liquidation. However, the federal government also offers exemptions.
The fact that both the state of Kentucky and the federal government offer exemptions may seem confusing. But with two different sets of exemptions, a person has more options to protect property.
State and federal exemptions
FindLaw explains that depending on the state, the exemption laws of the state may co-exist with federal exemptions or replace them. In some situations, state exemptions may offer a larger exemption amount than the federal government. There are also situations where the reverse may be true.
For instance, a bankruptcy filer who is behind in mortgage payments may want to exempt a house from bankruptcy but does not know if the home will qualify for exemption. A good move in this situation is to compare state or federal exemptions to see if the filer qualifies for either. If a filer qualifies for both, another option is to see which homestead exemption covers the greatest amount.
Choose exemptions with care
Selecting the right bankruptcy exemption is also critical because the U.S. Courts website explains that bankruptcy filers cannot mix and match state and federal exemptions. A person cannot take a few state exemptions and then opt for a number of federal exemptions. Nor can a filer take both state and federal exemptions together.
In the end, bankruptcy filers must choose one set of exemptions. While this may require a lot of study and consultation with professional help, the result can be well worth it if it prevents unnecessary loss of property and assets in bankruptcy.