The Federal Wildcard Exemption
In a bankruptcy case, the property of the debtor is classified in one of two ways: exempt property and non-exempt property. Exempt property is the property the debtor is allowed to keep, while non-exempt property can potentially be liquidated and distributed to creditors. There are exemptions for a wide variety of personal property of the debtor including basic household items, clothing, a certain amount of equity in a home where the debtor resides, a certain amount of equity in a car, most retirement accounts, cash value in life insurance (the federal exemption is limited while New York’s is unlimited), a certain amount of a debtor’s professional tools, etc. What exemptions a debtor should choose depends on the state laws where the bankruptcy petition is filed and on the particular facts of the debtor’s case. In 2011, the New York laws were changed to give the debtor a choice between the federal or state bankruptcy exemptions. Both sets of exemptions protect a debtor’s basic personal property, but only the federal exemptions have a “wildcard” exemption.
The “wildcard” exemption provides protection for any property up to the value of $12,725. This includes cash, money in a bank account or from a tax refund, equity in a car that goes beyond the standard exemption, an interest in a second property (which would not be covered by the homestead exemption), an interest in a second vehicle (or vehicles), an interest in a personal injury lawsuit (or any other lawsuit), jewelry, stocks or bonds, an inheritance, lottery winnings, or even comic books, baseball cards, or merchandise for an eBay business. Quite simply, the wildcard exemption can be used to protect any asset up to the allowable wildcard limit. In the Second Circuit, the federal court that covers New York, the “wildcard” exemption has been construed liberally. “[T]his court has held that ‘any property’ means just that” Matter of Eldridge, 15 B.R. 594 (Bankr.S.D.N.Y.1981). This “include[s] no limitation on the type of property which may be exempt thereunder.” In re Beaudoin 427 B.R. 30 (Bankr. D. Conn 2010).
In New York, the most common reason to use the state exemptions, as opposed to the Federal exemptions that offer the “wildcard” exemption, is to protect equity in a house that exceeds the federal exemption limit. New York’s generous homestead exemption for the equity in real property varies by county and is determined by where the debtor lives. The equity in the primary residence of the debtor is protected up to $165,500 in New York City and the surrounding counties in a single filing or up to $331,000 in a joint filing. This is considerably more that the federal homestead exemption of $22,975 ($45,950 joint). Please note, if the debtor takes the federal homestead exemption, the wildcard exemption is reduced to $1,225 plus up to $11,500 of the unused portion of the homestead exemption. Using the federal homestead exemption may significantly reduce the available wildcard exemption, allowing trustees to liquidate potentially non-exempt assets.
The questions of what exemptions to use in any given case are highly fact specific. If you are contemplating filing for bankruptcy, we recommend speaking with an experienced bankruptcy lawyer to help determine what exemptions should be utilized in your case.
If you have any questions about bankruptcy or bankruptcy exemptions, please feel free to contact our office at 888-529-9600 or fill out our Free Legal Consultation form.