Bankruptcy Exemption Definitions
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Equity: Some exemptions cover a limited amount of ownership interest in the property. For example, a state may allow an exemption for $1,200 equity in a motor vehicle. If you have a car with a blue book value of $8,000 and you still owe $5,000 on your car loan, your equity in the car is $3,000. The bankruptcy trustee could sell your car, give you your $1,200 exemption and use the rest of the $3,000 to pay your creditors. If your residence is a motor home currently worth $90,000, but you owe $80,000, your equity is $10,000 and you only need that amount in homestead exemptions to keep the mobile home.
Value: To determine equity you have to know the value of the property. For purposes of bankruptcy this is the resale value of the property in the current market, not the replacement or purchase value. To value real property you have a real estate agent look at recent sales of similar property in your area. You look at the blue book value of motor vehicles. For used equipment, appliances, household goods, and so on, you can determine the value by looking at similar items on Craigslist, E-Bay, at thrift stores, and flea markets. It’s your responsibility to do this research.
Homestead: A homestead exemption concerns property that you are using for your residence at the time you file for bankruptcy. The definition of what is included within this exemption varies somewhat from state to state and in the federal exemptions, but it can include land, buildings on land, a motor home, a mobile home, a boat, a co-op apartment, or condominium.
Wildcards: Several states have created a “wildcard.” This is an exemption that you can apply to any property. For example, if you own a car in Vermont worth $9,000 and the exemption for motor vehicles is $2,500, you can use the $7,000 the state allows as a wildcard to make up the difference. You can also use a wildcard to exempt property that isn’t listed as exempt, such as a painting. The value of the wildcard is different according to which state you live in.
Click here to read an Introduction to Bankruptcy Exemptions.