The U.S. Bankruptcy Code (11 U.S.C. § 522) sets forth the exemptions for different types of property that a debtor can keep when they file a bankruptcy petition. In other words, there are specific rules regarding what property a debtor can keep when filing for bankruptcy. In this post, we list the commonly used federal bankruptcy exemptions which are meant to protect the “necessities of life.” See, H.R.Rep. No. 95–595, p. 126 (1977). It was the intention of Congress to help debtors achieve a successful financial fresh start when they enacted these exemptions. They wanted debtors to have the property, resources, and goods necessary to start fresh.
Perhaps the most useful federal bankruptcy exemption is the “wildcard” exemption. The federal wildcard protects $1,250 of any property, plus up to $11,850 of any unused homestead exemption. This means if you are not protecting any real property in which you live, you can protect anything up to a $13,100 value (e.g. cash, excess equity in a car, jewelry, stocks, bonds, clothing, electronics).
Using the federal homestead exemption, a debtor may protect up to $23,675 of equity in real property (house, condo, co-ops, vacant land, burial plots, etc.) The amount protected is doubled ($47,350) if filing joint with a spouse who is also on the deed. Please note that here in New York, the bankruptcy homestead exemption under state law is much higher and allows a debtor to protect much more equity in their home. The homestead exemption for a single filer ranges from $165,550 to $82,775 and depends on the county that you live in (Kings, Queens, New York, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester and Putnam counties all use the highest exemption value).
A debtor may protect most retirement accounts when they are using the federal bankruptcy exemptions. This includes tax exempt retirement accounts, such as 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans. Additionally, debtors may keep up to $1,283,025 in IRAS and Roth IRAs. Allowing debtors to keep their retirement accounts is good public policy, because it makes it much less likely that they will become dependent up on government aid in the future.
The federal bankruptcy exemptions include protecting equity in a motor vehicle up to $3,775. This exemption can protect much more when used in conjunction with the wildcard exemption. If the homestead exemption is not being used and the wildcard exemption is not being used to protect any other property, a debtor may protect a vehicle worth up to $16,875.
With regards to other the “necessities,” a debtor may also protect up to $12,625 in household goods, furnishings, or clothing. Furthermore, a debtor may also keep up to $1,600 of jewelry and up to $2,375 for the tools of their trade. A debtor’s health aids, like wheelchairs, canes, etc. are also protected under the federal bankruptcy code.
A debtor can also protect certain types of funds traceable to lawsuit settlements, jury verdicts and awards. A debtor may protect up to $23,675 of their interest in a personal injury lawsuit up to $23,675 with a separate exception for the money awarded specifically for pain and suffering or for pecuniary loss. A debtor may also protect their interest in a wrongful death award or settlement provided they were dependent upon the decedent.
The federal bankruptcy exemptions ensure that a debtor will be able to keep a wide variety of benefits including: public assistance, Social Security, veteran’s benefits, unemployment compensation, disability, unemployment or illness benefits, and crime victim’s compensation. A debtor can also protect any alimony and/or child support which they need for support.
A debtor may also protect life insurance policies under the federal bankruptcy exemptions. This included unmatured life insurance policy (except credit insurance) and whole life policies with a loan value up to $12,625. Additionally, life insurance payments for someone you depended on are protected, provided that you need the payments for support.
In conclusion, based on the wide variety of protectable assets, it becomes clear that the purpose of the exemptions in bankruptcy is to enable debtors to keep the assets they need in order to better achieve a successful fresh start upon receiving their discharge. If you have any questions about the federal bankruptcy exemptions, or any questions about property that you can keep if you file for bankruptcy, please contact the Law Offices of David I. Pankin, P.C. by calling 888-529-9600. David I. Pankin P.C. is a Brooklyn bankruptcy lawyer with convenient office locations in Manhattan, Brooklyn and Long Island.