Bankruptcy is designed to ultimately give Americans a fresh start on a stable financial future. In order to do so, there are some items that you own which state and federal laws allow you to keep during your bankruptcy. These items are called exemptions or exempt property and these exemptions can vary from state to state. With a Chapter 7 bankruptcy a trustee uses your property to pay your creditors, but they can’t seize any exempt property. With a Chapter 13 bankruptcy, you are not required to repay creditors for property that’s been deemed exempt.
Most states require you to use their state’s exemptions when filing for bankruptcy.
Other states allow you to choose whether it is better for you to use the state exemptions or the federal exemptions which are defined in the Bankruptcy Code. You can’t choose to take some state exemptions and some federal exemptions. You must choose to use either the federal or the state exemptions. The states where you can choose which exemptions to use include Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin.1 To find out more on these state exemptions, click on the state name in the table listed at https://www.thebankruptcysite.org/exemptions/federal.html
The exemptions that the federal government allows are the same for all Americans. They are tied to the Consumer Price Index and can change every three years depending on the index.2 The current federal bankruptcy exemptions are in effect until April 1, 2022. The amounts listed are for an individual bankruptcy filer. If both spouses file for bankruptcy protection, the amounts would be doubled. Below are some of the federal bankruptcy exemptions. Not all federal exemptions are listed below. Make sure to check with a bankruptcy attorney about how and if these pertain to your situation.
Your home/homestead: You can keep up to $25,150 of the equity in the home, including a mobile home, in which you live or on land which you purchased with the intent to build a home in the future.
Personal Property: You can keep up to $13,400 in household goods, furnishings, appliances, clothing, books, animals, crops and musical instruments, with limits in value that vary. If you have up to $4,000 in equity in a vehicle, you can keep it. You can keep jewelry unless it exceeds the value limit. Your bankruptcy attorney has this information. You can keep up to $2,525 in tools or books you need for work. All health aids are exempt regardless of value. Again, a bankruptcy attorney can provide you with the appropriate information depending on your situation.
Other Sources of Financial Support: You can keep most alimony, spousal maintenance and federal and state benefits like Social Security, unemployment, veterans’ benefits, public assistance and disability payments. You can also keep up to $25,150 which you received from a personal injury lawsuit and any compensation received as a crime victim.
Retirement Savings: Individual Retirement Accounts (IRA), including Roth IRAs, are exempt up to $1,362,800. Tax-exempt retirement accounts are exempt regardless of value. However, if you have considerable tax debt, it gets involved, so you need to check with your bankruptcy attorney about your tax debt options and if it affects your retirement.
The federal bankruptcy exemptions also include what is called a “wildcard.” It is a certain dollar amount that a debtor can apply to any asset.3 The wildcard exemption is $1,325, plus $12,575 of any unused homestead exemption. This exemption can be used to protect items such as an additional vehicle, cash, bank accounts, and property like jewelry that is worth more than its category allows.
A Bankruptcy Attorney Can Help
Bankruptcy exemptions can get complicated, so it is best to consult with a bankruptcy professional who will work with you to review your assets and determine what is exempt by law based on either federal or state guidelines. The bankruptcy professional will also be able to guide you in choosing whether to use federal or state guidelines if you live in a state which allows you to choose between the two.
Hines Law Bankruptcy Firm has been providing debt relief options to the residents of Massachusetts for more than 20 years. We have the experience and commitment to help you navigate the bankruptcy process. If you have overwhelming debt and would like to gain back control of your finances, the bankruptcy attorneys at our firm are here to help. Call for a Free Consultation.
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1 Federal Bankruptcy Exemptions, by Carron Armstrong, 5/12/2021
Link: https://www.thebalance.com/federal-bankruptcy-exemptions-316163#
2 Federal Bankruptcy Exemptions by Cara O’Neill,
Link: https://www.thebankruptcysite.org/exemptions/federal.html
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