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A waiver of exemption is a voluntary suspension of legal protections that normally cover lawsuits, seizures, and other penalties. Historically, it was used in some types of loan agreements, and it also appears in admiralty law, where sovereigns can choose to waive their normal legal exemption in certain cases. Legal waivers of any kind can expose people to risk and it is important to read them carefully before signing to indicate consent to the terms.
In the lending industry, the waiver of exemption allows a lender to seize property that would normally be exempt in the event of a default. This includes personal property and certain other possessions, depending on the law and the loan. In many regions, people in default or bankruptcy are allowed to keep certain items necessary to survival or maintaining a business. When people sign a waiver of exemption, lenders can ignore the law and take items that would normally be protected, selling them to recoup the cost of the loan.
The use of waivers of exemption in loan contracts was outlawed in the United States in the 1980s because it had considerable potential for abuse. Regulators at the Federal Trade Commission (FTC) charged with consumer protection felt the waiver of exemption created an unfair advantage for lenders and also created serious potential risks for borrowers. People might feel pressured into signing in order to access a loan even though the waiver went against their legal interests.
Admiralty law allows sovereigns to file a waiver of exemption in certain cases. Normally, a sovereign is provided with certain legal protections against suits and penalties. When these are waived, it is possible to bring suit; essentially, the sovereign is giving permission for a suit to move forward in court. It is possible to waive exemptions by implication, as when the government brings suit and opens itself up to the possibility of a countersuit in the same case.
It is possible to waive other legally provided exemptions. Before accepting a waiver, people can review it and may ask an attorney to look at it as well to learn more specifically about the risks and benefits. There may be cases when a waiver creates a disadvantage and should be avoided, while in others, it may have a neutral or beneficial impact. Attorneys familiar with the specific laws involved can discuss the issue with their clients and provide advice on how to proceed.
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