Freeing me from my debts in bankruptcy is in exchange for losing some of my possessions. How does that work?
The Bankruptcy Law determines which assets of the bankrupt individual are turned over to the trustee.
The federal Bankruptcy Code provides that you can protect some property from the claims of creditors either because it is exempt under federal bankruptcy law or because it is exempt under the laws of your home state. You get to keep the exempt property. In a Chapter 7 case, the trustee will take any property that is not exempt and sell it to pay off creditors. (The "exempt" and "nonexempt" classification has no effect under a Chapter 13 bankruptcy, since a repayment plan is used to pay your debt obligations.)
Many states have taken advantage of a provision in the bankruptcy law that permits each state to adopt its own exemption law in place of the federal exemptions. In other jurisdictions, you have the option of choosing between federal exemptions or exemptions available under state law. Though the types of property that are exempt may be similar under both federal and state law, the value of the asset that can be excluded differs widely. If you are married filing jointly, both spouses must make the same exemption election.
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