Legal Definitions - waiver of exemption

A waiver of exemption occurs when an individual or entity voluntarily gives up a legal right that would normally protect certain assets from being seized or sold by a creditor to satisfy a debt. Many laws provide "exemptions" to debtors, meaning specific types of property (such as a primary residence up to a certain value, or essential household goods) are legally protected from being taken by creditors, even if the debtor owes money.

When a debtor agrees to a waiver of exemption, they are essentially agreeing to forgo this legal protection for specific property, making those assets available to the creditor if the debt is not paid. The term can also refer to the specific clause within a contract where this agreement is formally made.

Here are some examples to illustrate this concept:

• Business Loan for Equipment: Imagine a small business owner takes out a loan to purchase a new, specialized piece of manufacturing equipment. The lender, to secure the loan, requires a waiver of exemption specifically for that new machinery as part of the loan agreement. This means that if the business defaults on the loan, the lender can seize and sell that particular piece of equipment to recover their money, even if state law might otherwise protect business equipment up to a certain value from creditors. The business owner voluntarily gave up that protection for this specific asset to obtain the necessary financing.

• Personal Loan with Collateral: An individual seeks a personal loan and offers a valuable collection of rare coins as collateral. As part of the loan agreement, they sign a contract that includes a waiver of exemption for this coin collection. Ordinarily, state law might protect certain personal belongings from being seized by creditors. However, by signing this waiver, the individual has agreed that if they fail to repay the loan, the lender can pursue the coin collection to recover the debt, overriding the usual exemption that might have otherwise applied to such personal property.

• Credit Card Agreement Clause: A high-limit credit card agreement might contain a clause stating, "The undersigned debtor hereby waives any and all rights to exemption of personal property from levy or sale under judicial process, to the extent permitted by law, for the purpose of satisfying any outstanding obligations under this agreement." This specific contractual language itself constitutes a waiver of exemption. By signing this agreement, the cardholder has agreed in advance that certain assets, which might otherwise be protected by law, could be pursued by the creditor if they default on their credit card debt, making it easier for the creditor to collect if legal action becomes necessary.