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What is a "personal exemption" in bankruptcy?

When residents of eastern Tennessee consider filing a petition for bankruptcy, one of their first questions is usually whether they will lose any property in the process, and the family residence is the largest and most important asset a family owns in many cases. Other important assets include the family car and personal effects, such as furniture, tools and equipment. The answer to the question of property loss depends upon the value of the assets and the bankruptcy filer's personal financial situation.

Tennessee law provides a number of exemptions that shield personal property from attachment by creditors. Understanding those exemptions is the key to understanding which assets may be lost in bankruptcy. Tennessee law provides a general exemption of $10,000 for personal property. This exemption applies to the debtor's equity in the assets. Assets obtained by fraud may not be included in the exemption and are subject to the claims of creditors.

In addition to the general exemption of $10,000, a Tennessee resident may claim individual items of personal property, including all "necessary and proper" wearing apparel for the debtor and the debtor's family, all family portraits and pictures and the family's Bible and school books. All money received as a pension from the State of Tennessee is also exempt from the claims of creditors. Similarly, assets payable to a debtor from a retirement plan qualified under the Internal Revenue Code are exempt from attachment. The state also places a limit upon the amount of wages that can be attached; the limit is 25% of net disposable earnings per week. Bankruptcy filers should be aware that their earnings may be garnished to pay child support. Payments from a health insurance or liability insurance policy are also exempt from attachment.

A number of federal benefits are also exempt from execution in Tennessee. These benefits include Social Security benefits, unemployment compensation, a veteran's benefit and disability benefits.

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