An individual who files bankruptcy, also known as a debtor, is allowed to keep a certain amount of property to get a fresh start after the case is over. The property that a debtor can keep is called exempt property.
In most states, resident debtors must use the exemptions 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 where a debtor can choose whether to use state or federal bankruptcy exemptions are 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.
If you live in a state not listed here, you must use the state exemptions.
Federal Bankruptcy Exemptions
Here is a list of 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.
You can protect up to $25,150 of the equity in your home, 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 the exemption 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.
Personal Property Exemptions
You can keep up to $13,400 in items ($625 maximum per item). This applies to household goods, furnishings, appliances, clothing, books, animals, crops, and musical instruments.
Other personal property exemptions include:
- Motor vehicles: Vehicles with up to $4,000 in equity are exempt (one vehicle per spouse). Your equity is the value of the vehicle if you don't have a car loan. If you have a car loan, your equity would be the value of the vehicle less your loan balance.
- Jewelry: Items up to $1,700 in value are exempt.
- Tools of the trade: Up to $2,525 of professional books or tools you need for work are exempt.
- Health aids: These are exempt without regard to value.
- Unmatured life insurance: Up to $13,400 in loan value, accrued interest, or dividends is exempt.
If you're receiving life insurance payments from a policy taken out by someone you depended on, you may be able to keep the amount needed for your support. If you're receiving alimony or spousal maintenance, you can keep the amount reasonably necessary for your support.
You can also keep most types of federal and state benefits, including Social Security, unemployment, veterans benefits, public assistance, and disability payments.
Injury Award Exemptions
If you are awarded compensation from a personal injury lawsuit, up to $25,150 is exempt. Payments for pain and suffering are not exempt. Compensation for loss of future earnings needed for support are exempt, as well as anything awarded for the wrongful death of a person you were dependent on for support. Any compensation you receive as a crime victim is also exempt.
Retirement Account Exemptions
Tax-exempt retirement accounts are exempt without regard to value, except that IRAs and Roth IRAs are capped at $1,362,800.
The wildcard exemption can be used in a variety of ways to exempt any property you own, which could include:
- Cash, bank accounts, shares in a corporation or other investments, or other property
- Property that's worth more than its category allows
- Additional vehicles
The federal wildcard exemption is $1,325, plus $12,575 of unused homestead exemption.
In Chapter 7 bankruptcy, your trustee can't sell exempted property to pay your creditors. In Chapter 13 bankruptcy, you don't need to repay creditors for property that's been exempted.
Federal Nonbankruptcy Exemptions
Nonbankruptcy exemptions are exemptions that don't appear in the federal Bankruptcy Code. They can protect assets and property in bankruptcy, but these exemptions apply to specific individuals and occupations. For example, survivor's benefits for spouses of lighthouse workers are exempt from bankruptcy. For individuals in states that require the use of a state's exemption scheme, you can use federal nonbankruptcy exemptions.