Creditors can't enforce a lien or judgment against property that is exempt under federal or state law. While exemption planning can't offer total protection, it can offer some shelter for certain assets.

Both federal and state laws govern whether property is exempt or nonexempt in non-bankruptcy proceedings (separate federal and state laws govern whether property is exempt or nonexempt in bankruptcy proceedings). Generally, you can choose whether the federal exemption or the state exemption applies.

When looking at exemption laws, be sure to find out how much of an exemption is allowed for a particular type of property--it may be completely exempt, or exempt only up to a certain amount or restricted in some way. Types of property often receiving an exemption include:

  • Homestead(principal residence)
  • Personal property
  • Motor vehicle
  • IRAs, pension plans, and Keogh plans
  • Prepaid college tuition plans
  • Life insurance benefits and cash value
  • Proceeds of life insurance
  • Proceeds of annuities
  • Wages

Tip: In those jurisdictions that recognize ownership by tenancy by the entirety (TBE), creditors of the husband or creditors of the wife cannot reach TBE assets.

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