Bankruptcy exemptions are laws written by both the state and federal government to ensure that a debtor’s assets are protected in order to ensure a fresh start after filing for bankruptcy. When filing for bankruptcy, debtors are required to fill out quite a few papers. Among these is the Schedule C form. In this form, a debtor will list the property that he is claiming to be exempt.
The laws that govern bankruptcy exemptions are numerous, but a debtor has two options: choose to follow state exemption laws or federal exemption laws. However, only 15 states and Washington D.C. allow a debtor to choose between federal or state exemption laws. These states are: Arkansas, Connecticut, Hawaii, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont, Washington, and Wisconsin.
Defining what kind of property is exempt under federal law:
Again, only the 15 states mentioned before and Washington D.C. allow a debtor to use federal exemption laws. Also note that these exemptions can be doubled if a debtor is filing with his spouse.
Real property
Real property, co-op or mobile home up to $16,150.00
Personal Property
Animals, appliances, books, clothing, crops, furnishings, household goods, and musical instruments: up to $425.00 per item, $8,625.00 total.
Vehicles: up to $2,950.00
Jewelry: up to $1,225.00
Tools of trade, i.e. work tools: up to $1,625.00
Health Aides: unlimited
Burial plots: up to $16,500.00
All other property: up to $8,075.00 of
Wages and Pensions, Recoveries and Benefits
Personal Injury Funds: up to $16,500.00
Wages: none
Wrongful Death Funds: only amount needed for continuing support
Lost earnings: unlimited
Retirement Benefits: only amount needed for continuing support
Alimony: only amount needed for continuing support
Unemployment Compensation: unlimited
Veteran’s benefits: unlimited
Crime Victim’s Compensation: unlimited
Social Security and Public Assistance: unlimited
Life and health Insurance
Disability: unlimited
Unemployment compensation: unlimited
Life insurance policy loan and/or dividends or interest: up to $8,625.00
Life insurance proceeds: only amount needed for support
Education Funds
Education funds must be placed in an educational retirement account or a State tuition program at least one year before the bankruptcy filing. However, there are limits established by the Internal Revenue Code.
Which state exemption laws to use:
The rule of thumb is that if you have lived in a state for 730 days (2 years), then use state exemption laws. However, if you have not lived in a single state within the past previous 2 years, use the state where the majority of the 180 day period preceding the 2 year period was spent.
Daniel Cho is a financial writer for Select Debt Relief, which specializes in the various forms of Debt Relief including Debt Settlement and Debt Reduction. Currently he studies Business at the University of California at Berkeley.
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