It is not necessary that you lose all your property when you file for bankruptcy. While filing for bankruptcy, it is therefore important that you are aware of the exemptions allowed by the state as well as federal government under various chapters. This is important to salvage as much of your assets as you can. You should know the details to choose the best exemption to save your property. Some states offer you a choice between state and federal bankruptcy exemption, however Sacramento requires you to choose the state exemption only. In case you reside in any other state, you can use the federal bankruptcy exemptions to protect your property. It is important to know that federal bankruptcy exemption amounts vary every 3 years.
How Do Bankruptcy Exemptions Protect Property?
As per law firm Recovery Law Group, each state has a set of bankruptcy exemptions in place which individuals can use to protect their property. Federal laws also allow bankruptcy exemptions. However, people are often perplexed as to which is better for them. Since some states allow you the option to choose from state or federal bankruptcy exemptions it is important to weigh in your options as you aren’t allowed to mix and match from both lists.
The states which offer you a choice between state and federal exemptions 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. In case you reside in a state which is not mentioned above, you only have the option of the state’s bankruptcy exemption. Some states like California, allow 2 state choices for bankruptcy filers.
What is covered under Federal Bankruptcy Exemptions?
Bankruptcy exemptions take in mind that they provide a new lease of life to filers. Federal bankruptcy exemptions are created by the congress which allows to protect certain amount of property for a fresh start. In case a married couple files for bankruptcy jointly, they can double the exemption amount. Here’s a list of commonly used federal exemptions:
• Homestead Exemption for Residence
If you wish to protect the house you live in, federal exemptions allow you to protect up to $25150 of equity in your primary place of residence (as of April 2019). This includes a condo, house or a property used as residence including residential trailer. However, this exemption does not include property for investment or rental purposes. It is important to note that for bankruptcy cases filed before April 1, 2019, the exemption amount is $23675.
• Personal Property Exemption for Your Possessions
Any property other than real estate can be counted under personal property. Some of the most common federal property exemptions that a bankruptcy filer can claim as of 1st April 2019 include:
$4000 for motor vehicle
$1700 for jewellery
$625 per individual item with $13400 combined value on household goods including furniture, appliances, clothes, musical instruments, books, pets, crops etc.
$2525 for trade related tools including kits and books.
$13400 in loan value, accumulated dividends or interest in life insurance policy.
For cases filed between 1st April 2016 and March 31st 2019, the exemption amount include:
$3775 for motor vehicle
$1600 for jewellery
$600 per individual item with $12625 combined value on household goods including furniture, appliances, clothes, musical instruments, books, pets, crops etc.
$2375 for trade related tools including kits and books.
$12625 in loan value, accumulated dividends or interest in life insurance policy.
• Benefit or Spousal Support Exemptions
This includes child or spousal support and life insurance payments that is important and essential for your sustenance. All social security, unemployment and veteran’s benefits apart from public assistance and any disability or illness benefits can be available under this exemption.
• Personal Injury Recovery Protections
For any personal injury incurred there are exemptions available:
$25150 for personal injury excluding pain and suffering or any financial loss incurred due to it. (for cases filed prior 1st April 2019, the amount is $23675)
Any loss in future earnings for which support is required.
Reclamation for wrongful death of any person on whom you relied for financial support.
All compensation received for being a crime victim.
• Retirement Account Protections
All retirement accounts which are exempt from taxation are fully exempt, with the limit capped by IRAs and Roth IRAs at $1,362,800. For cases filed before 1st April 2019, the limit is $1,283,025.
• Wildcard Exemptions
As the name specifies, this exemption can be used for any property you own. Under the current situation, $1325 plus $12575 of any unused portion of homestead exemption can be used to exempt any property of your choice. For people who filed for bankruptcy before 1st April 2019, the figures for wildcard exemption are $1250 plus $11850.