Most states exempt a portion of the value of certain items, such as a vehicle, tools of a trade, and a homestead, from creditor execution and from bankruptcy. In many states, the exemption amount for a vehicle, personal property, or a homestead is the same for judgments and bankruptcy.
What does this mean as a practical matter? Let us use a vehicle to illustrate.
Let us say that a debtor owns a vehicle that has a market value of $4,000. The debtor owns the vehicle free and clear -- there is no lienholder. Let us say the debtor resides in a state where the exemption for vehicles is $5,000. A creditor has a judgment and wishes to place a lien on the vehicle. A court will not allow the creditor to do so because the state disallows liens on vehicles that are worth less than $5,000.
Now let us change the facts slightly. Let us say that the market value of the debtor's vehicle is $15,000. Here, the creditor will be allowed to place a lien on the vehicle because it has a market value greater than the exempted amount.
A debtor may protect some property from the claims of creditors if the property is exempt under federal bankruptcy law or under the laws of the debtor's home state. A debtor should consult an attorney to determine the exemptions available in the state where the debtor lives. A trustee will liquidate the debtor's remaining non-exempt assets.
Exemption of assets in bankruptcy functions similar to the creditor execution example cited above. If the debtor's state allows an exemption of $X for an item, and the item is worth that value or less, the item cannot be seized and liquidated by the bankruptcy trustee. If the exempt item is worth greater than the exemption allowed for that item, then in some states there are wild-card exemptions that can be added to the regular exemptions for an item to shield it from liquidation. Again, this the wild-card exemption is available in only some states, and an attorney will be able to give precise answers to questions about exemptions in the debtor's state.
You mentioned the Bills.com Collection Laws and Statute of Limitations and the vehicle exemption for Idaho. The vehicle exemption for Idaho today is $5,000, and the $3,000 amount was an old value. Apply the analysis above to determine if your vehicle is exempt for creditor execution or bankruptcy.
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