Federal Bankruptcy Exemptions

House and cash
Home equity and cash can be exempted using the federal bankruptcy exemptions. Getty Images

There is a perception in this country that bankruptcy leaves a person penniless or nearly so. That is simply not the case. An individual who files bankruptcy, also known as a debtor, is allowed to keep a certain amount of property with which to get a “fresh start” after the bankruptcy case is over. The property that a debtor can keep is called exempt property. In fact, the vast majority of people who file bankruptcy lose nothing (but the attorney's fee and filing fee).

In most states, resident debtors must use the exemptions that are defined by their state’s laws, even though bankruptcy is otherwise governed by federal law. In some states, debtors can choose between their state’s exemptions and a different list of exemptions contained in the federal law that governs bankruptcy, known as the Bankruptcy Code. The states that can choose include Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, Pennsylvania, Rhode Island, Texas, Vermont, Washington and Wisconsin.

If you live in a state not listed here, you must use the state exemptions. You can learn more about your state’s exemptions courtesy of an excellent resource website put together by Nolo.com: Bankruptcy Exemptions By State.

Federal Bankruptcy Exemptions

Here is a list of the federal exemptions as they apply to each individual filing.

If both spouses file, these amounts can be doubled. The amounts in the list of federal exemptions change every three years, and will be adjusted next in 2019.

Homestead Exemption: $23,675 in equity.  

You can protect the equity in your homestead, but not necessarily in an investment property or a second home.

You can apply this exemption to unimproved land on which you intend to live in the future, You can also apply it to a mobile home that you own that sits on rented property. Ordinarily, you can only apply it to one property because you can have only one homestead. However, if you and your spouse file jointly, do not live together, maintain separate homesteads and (according to at least one court) do not otherwise have a direct financial connection with one another, each spouse can claim a separate homestead up to the amount allowed an individual. 

Motor vehicle: $3,775 in equity (one vehicle per spouse)

Jewelry: $1,600

Household goods: $12,625 ($600 maximum for each individual item)

This applies to household goods, furnishings, appliances, clothing, books, animals, crops, and musical instruments.

Tools of the trade: $2,375

Health aids: exempt without regard to value

Unmatured life insurance: exempt without regard to value

Life insurance payments: amount needed for support under a policy taken out by someone of whom you were a dependent

Loan value in life insurance: $12,625

Domestic maintenance: amount reasonably necessary for support

Social security, unemployment, veterans benefits, public assistance, disability: exempt without regard to value

Personal injury awards

  • $23,675, except for pain and suffering or actual pecuniary loss
  • Loss of future earnings needed for support
  • Award for wrongful death of person of whom you were a dependent

Compensation as a crime victim

Retirement Accounts: Tax exempt retirement accounts are exempt without regard to value, except that IRAs and Roth IRAs are capped at $1,283,025.  

Education IRA and pre-purchased tuition credits: exempt without regard to value

Spendthrift trust: exempt without regard to value

Wildcard exemption: $1,250, plus $11,850 of any of the homestead exemption you did not use.

The wildcard exemption can be used in a variety of ways to exempt any property you own: 

  • Cash, bank accounts, shares in a corporation or other investments, or other property not otherwise accounted for in the list.
  • It can be used to increase the amount of value exempted in property that is worth more than its specific category will allow.
  • It can be used to exempt additional vehicles.
  • It can be used to exempt more of other types of property already listed, like jewelry or household goods.

Federal Non-Bankruptcy Exemptions

Across the broad spectrum of federal law, other federal exemptions can be found that are used in other non-bankruptcy situations. These non-bankruptcy exemptions are for the most part covered by the federal bankruptcy exemptions, and are therefore NOT available for use by individuals electing to apply the federal bankruptcy exemptions. For individuals in states that require the use of a state's exemption scheme, the federal non-bankruptcy exemptions are available. To learn more about this, read Federal Non-Bankruptcy Exemptions.

For more on how to apply for bankruptcy exemptions, see

Understanding Bankruptcy Exemptions

Deciding Which State’s Exemptions to Apply

How Bankruptcy Exemptions Affect Chapter 13 and Chapter 11 Cases

Federal Non-bankruptcy Exemptions

Choosing Between State and Federal Bankruptcy Exemptions

 

Updated July 2017 by Carron Nicks