Legal Definitions - opt-out statute

An opt-out statute is a law that limits the exemptions that a debtor can claim when filing for bankruptcy. This means that the debtor can only claim exemptions provided by state and local bankruptcy laws, as well as nonbankruptcy federal law.

For example, let's say John files for bankruptcy in a state that has an opt-out statute. He can only claim exemptions that are allowed by the state and federal laws, and not any additional exemptions that may be available under the federal bankruptcy code.

The federal bankruptcy code does have an "opt-out" provision that allows states to choose not to adopt the federal exemptions. This means that states can decide to only allow the exemptions provided by their own laws, rather than the federal laws.

Overall, opt-out statutes are designed to limit the amount of exemptions that a debtor can claim, which can make it more difficult for them to protect their assets during bankruptcy proceedings.