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State and federal laws provide what are called "exemptions".
What this means is that a debtor is entitled to keep certain
property in various categories up to a particular dollar
value. Assets in excess of the exemption levels are considered
"non-exempt assets", which are generally given
to the trustee (the debtor also has the option of paying
the trustee in cash the amount of money he would have
received had property been taken by the trustee and sold).
As one example, the exemption for residential real property
in Tennessee is $7,500 in equity (value less mortgages)
for a married couple. If a couple has a home worth $50,000
with a mortgage of $42,500, they would not lose the home
because the equity would be $7,500--exactly the amount
of the exemption. On the other hand, if a couple had a
home worth $100,000 and a mortgage of $50,000, the amount
of equity ($50,000) would exceed the exemption level.
In such a case, the trustee would have the home sold,
pay off the mortgage, give the debtors their $7,500 exemption,
and use the remaining funds to pay down the claims of
unsecured creditors. In actual practice, very few people
have non-exempt assets. During the initial office consultation,
we will go through a checklist of questions to see if
there is any realistic possibility of losing any property
to the trustee.
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