Paralegal Advanced Competency Exam (PACE) Practice Exam

What does exempt property refer to in the context of bankruptcy?

1. Property that can be repossessed by creditors

2. All property of a debtor that is not attachable

3. Assets that are guaranteed under state law

4. Property that is sold to satisfy debts

The correct answer is: All property of a debtor that is not attachable

Exempt property refers to certain assets that a debtor is allowed to keep despite filing for bankruptcy. These properties are protected from creditors, meaning they cannot be seized or sold to satisfy debts. In bankruptcy proceedings, the law provides for exemptions that allow individuals to retain essential items necessary for their livelihood, such as a home, a vehicle, personal items, and tools needed for their job. The distinction between exempt and non-exempt property is critical in bankruptcy cases, as it determines what the debtor can retain after discharge. The law varies by state, as each state may have its own list of which properties are considered exempt. The other choices do not accurately reflect the concept of exempt property. Property that can be repossessed by creditors directly contradicts the idea of exempt property, which is about protection from such actions. Assets that are guaranteed under state law may not capture the full intention of exemption, as not all guaranteed assets are exempt. Finally, property that is sold to satisfy debts is the opposite of exempt property, as exempt items are specifically those that cannot be sold for that purpose.