Definition from Nolo’s Plain-English Law Dictionary
1) In tax law, an amount taxpayers are allowed to deduct from their taxable income based on a circumstance or their status. Each year, taxpayers get an exemption for themselves, each dependent, blindness or other disability, and for being over age 65.
2) In debt and bankruptcy, protection for certain types and amounts of assets from being taken by creditors or by the trustee in bankruptcy court to pay off debts. (See: homestead exemption)