ABA Family Legal Guide

Consumer Bankruptcy

Straight Bankruptcy: Chapter 7

Chapter 7 Defined

How do exemptions work if my creditor has a security interest in the property?

Exemptions do not ordinarily affect the rights of creditors to assets on which they have a secured claim. For example, a homestead exemption generally does not affect the right of a mortgage lender to foreclose on your home. Similarly, furniture bought on store credit may be subject to a purchase money security interest, and some credit card companies may attempt to create liens on items you purchase with their cards, in which case such creditors may have rights to your assets even in bankruptcy. Under some specific circumstances, the Bankruptcy Code may permit you to undo a lien or security interest and then assert exemption rights.