Bankruptcy exemptions, created by both federal and state bankruptcy laws, determine what property is exempt in the bankruptcy process. Exempt property can vary from state to state, although some states let the debtor decide if they want to use the federal bankruptcy exemptions or their state’s exemptions. Other states require the filer to use the state exemptions.
Federal bankruptcy exemptions can be used in the following states: Arkansas, Connecticut, Washington, D.C., Hawaii, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont, Washington, and Wisconsin.
State bankruptcy exemptions must be used in the following states: Alaska, Arizona, California, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.
Debtors who choose to use their state’s bankruptcy exemptions may also be able to use additional exemptions outlined under federal law called the federal nonbankruptcy exemptions.
What type of property is considered exempt under federal bankruptcy law?
Federal bankruptcy exemptions laws are generally updated every three years. Updates were made in 2010. Keep in mind, if you are married and filing a joint bankruptcy petition you may double the federal exemptions. All code references are to 11 U.S.C. (Title 11 of the United States Code).
522(d)(1), (5) – Real property, including mobile homes and co-ops, or burial plots up to $21,625. Unused portion of homestead, up to $10,825, may be used for other property.Personal Property:
522(d)(2) – Motor vehicle up to $3,450.
522(d)(3) – Animals, crops, clothing, appliances and furnishings, books, household goods, and musical instruments up to $550 per item, and up to $11,525 total.
522(d)(4) – Jewelry up to $1,450.
522(d)(9) – Health aids.
522(d)(11)(B) – Wrongful death recovery for person you depended upon.
522(d)(11)(D) – Personal injury recovery up to $21,625 except for pain and suffering or for pecuniary loss.
522(d)(11)(E) – Lost earnings payments.
522(b)(3)(C) – Tax exempt retirement accounts (including 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans).
522(b)(3)(C)(n) – IRAS and Roth IRAs to $1,171,650.
522(d)(10)(A) – Public assistance, Social Security, Veteran’s benefits, Unemployment Compensation.
522(d)(11)(A) – Crime victim’s compensation.
Tools of Trade:
522(d)(6) – Implements, books and tools of trade, up to $2,175.
Alimony and Child Support:
522(d)(10)(D) – Alimony and child support needed for support.
522(d)(7) – Unmatured life insurance policy except credit insurance.
522(d)(8) – Life insurance policy with loan value up to $11,525.
522(d)(10)( C ) – Disability, unemployment or illness benefits.
522(d)(11)( C ) – Life insurance payments for a person you depended on, which you need for support.
522(d)(5) – $1,150 of any property, and unused portion of homestead up to $10,825.
What property is exempt under state bankruptcy exemption laws?
What if you live in a state which does not allow you to choose the federal bankruptcy exemptions? In most states the exemptions include personal property, homestead exemptions, tools of the trade, clothing, household good, income, unemployment benefits, pensions, workers compensation, insurance, and welfare benefits. Due the variations in state laws, it is a good idea to talk to a bankruptcy lawyer prior to filing bankruptcy to understand the exact amount of the exemptions for your state.
What else should I consider before filing bankruptcy?
There are generally two types of bankruptcies filed by debtors: Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. Chapter 7 Bankruptcy is considered a liquidation bankruptcy and allows the court-appointed trustee to liquidate the debtor’s non-exempt assets. Chapter 13 Bankruptcy permits debtors to keep their property and create a bankruptcy repayment plan to pay creditors over a 3 to 5 year period.
Bankruptcy Exemption Examples
So how does the exemption actually work? Let’s assume you own a car that is worth $4,000 and the exemption in your state for a car is $5,000. If you file Chapter 7 Bankruptcy, the full amount of the car is exempt and you will keep your car. But now let’s assume you own a car which is worth $20,000. If you file Chapter 7 Bankruptcy the trustee will most likely decide to sell your car and use the proceeds to pay your car loan, pay your unsecured creditors and give you $5,000 for the exemption.
What happens in Chapter 13 Bankruptcy? Debtors can either pay the non-exempt value to the creditors over the duration of the Chapter 13 Bankruptcy plan or they can sell the property, giving the trustee the proceeds from the sell. Of course, the benefit of Chapter 13 Bankruptcy is that most of the debtor’s property can be retained and does not have to be liquidated.