Bankruptcy Exemptions

Will I lose everything if I file for bankruptcy?

No, you will not lose everything if you file for bankruptcy. Bankruptcy exemptions help protect at least some property. The Founding Fathers did not envision bankruptcy as a punishment for owing more debt than you can afford to pay. They understood that good people can go through tough times and saw filing for bankruptcy as a way for those individuals to get fresh starts in life and to maintain a basic standard of living at the same time.

For that reason, the federal bankruptcy code distinguishes between assets that are exempt and assets that are non-exempt. Exempt assets are assets that you get to keep when you file for bankruptcy and nonexempt assets are ones that you may be at risk for losing. Again, though, most people who file for bankruptcy lose little or none of what they own.

What Do I Get to Keep?

There is a federal list of bankruptcy exemptions (see below), and each state has a list of exempt property as well. Seventeen states (Arkansas, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Pennsylvania, Rhode Island, Texas, Vermont, Washington State, Wisconsin and the District of Columbia) allow you to choose between their list and the federal list.

If you live in one of these states, your bankruptcy attorney will make sure that you use whichever bankruptcy exemption list will maximize the assets you get to keep. If you do not live in one of those states, then you must use your state’s exemption list when you file for bankruptcy.

You will declare the assets you are exempting when you file for bankruptcy. If you file Chapter 7 liquidation bankruptcy and you have any assets that are nonexempt, the trustee in your bankruptcy will take them, sell them, and distribute the sales proceeds to your creditors.

Most people who file Chapter 7 have no nonexempt assets and so they have no assets to lose. However, if you are considering filing Chapter 7 liquidation and you do have assets that you are at risk for losing, your bankruptcy attorney will probably recommend that you file Chapter 13 instead. That will allow you to hold on to those assets in exchange for paying more of what you owe.

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Federal Bankruptcy Exemptions

We list the federal bankruptcy exemptions below so you have an idea of the kinds of property that you can protected from your creditors if you file for bankruptcy, assuming you live in a state that allows you to claim either its exemptions or the exemptions on this list. But please don’t use this list to try to "self diagnose" whether you are a good or bad candidate for bankruptcy!

If you are thinking about filing, it's essential that you talk with a bankruptcy attorney who can help you understand how state and federal exemptions apply to your individual situation and how best to maximize your exemptions so you can hold on to as many of your assets as possible.

(1) The debtor's aggregate interest, not to exceed $21,625 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.

(2) The debtor's interest, not to exceed $3,450 in value, in one motor vehicle.

(3) The debtor's interest, not to exceed $550 in value in any particular item or $11,525 in aggregate value, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

(4) The debtor's aggregate interest, not to exceed $1,450 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

(5) The debtor's aggregate interest in any property, not to exceed in value $1,150 plus up to $10,825 of any unused amount of the exemption provided under paragraph (1) of this subsection.

(6) The debtor's aggregate interest, not to exceed $2,175 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor.

(7) Any unmatured life insurance contract owned by the debtor, other than a credit life insurance contract.

(8) The debtor's aggregate interest, not to exceed in value $11,525 less any amount of property of the estate transferred in the manner specified in section 542(d) of this title, in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent.

(9) Professionally prescribed health aids for the debtor or a dependent of the debtor.

(10) The debtor's right to receive–

(A) a social security benefit, unemployment compensation, or a local public assistance benefit;

(B) a veterans' benefit;

(C) a disability, illness, or unemployment benefit;

(D) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;

(E) a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless–

(i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor’s rights under such plan or contract arose;<br>
(ii) such payment is on account of age or length of service; and<br>
(iii) such plan or contract does not qualify under section 401(a), 403(a), 403(b), or 408 of the Internal Revenue Code of 1986.

(11) The debtor's right to receive, or property that is traceable to–

(A) an award under a crime victim’s reparation law;
(B) a payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
(C) a payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual’s death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;
(D) a payment, not to exceed $21,625, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or
(E) a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.

(12) Retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.


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