Federal Bankruptcy Exemptions Legally Available to Debtors
Some states allow debtors to choose between their exemptions and the federal bankruptcy exemptions when they are filing under Chapter 7 or Chapter 13. You should be aware that you must choose one set or the other in its entirety. You cannot combine the sets or choose some exemptions from one set and some from the other. The federal government changes the amount of its exemptions every three years.
If you are filing a joint petition for bankruptcy as a married couple, you can double your exemptions under the federal rules. This contrasts with the rules for exemptions in many states.
States Where Filers May Use the Federal Exemption System
Alaska; Arkansas; Connecticut; Hawaii; Kentucky; Massachusetts; Michigan; Minnesota; New Hampshire; New Jersey; New Mexico; New York; Oregon; Pennsylvania; Rhode Island; Texas; Vermont; Washington; Washington, D.C.; Wisconsin
Federal Homestead Exemption
You can use a homestead exemption to protect your principal place of residence. This can cover not only a house or condominium but also a mobile home or any other property that you use as a residence. However, similar to state homestead exemptions, the federal homestead exemption cannot be applied toward investment real estate.
Federal Personal Property Exemptions
Federal exemptions for personal property include an exemption for a motor vehicle, an exemption for “tools of the trade,” and an exemption for jewelry. You can also use an exemption to protect clothing, furniture, appliances, and other household items. This exemption has both an overall limit and a limit per item included, so you will need to be careful when calculating how to apply it. The federal exemptions also cover health aids and interest in life insurance policies, among other things.
Federal Wildcard Exemption
A wildcard exemption is a certain dollar amount that a debtor can apply toward any asset. It can be stacked with another exemption if that exemption does not cover the full value of a certain asset. If you do not need all of the federal homestead exemption to protect your principal place of residence, you can subtract up to a certain amount of the unused remainder to add to your wildcard exemption.
Other Types of Federal Exemptions
Under the federal exemption system, spouses who file for bankruptcy together may double the exemption amount on jointly owned property.
If you are receiving spousal or child support that is reasonably necessary, you can exempt these payments under the federal system. You can also exempt many forms of government benefits, such as unemployment benefits, Social Security, and any forms of public assistance. If you are relying on life insurance payments, an exemption covers those as well. An exemption also covers retirement accounts that are exempt from taxation, although a cap applies to IRAs (both traditional IRAs and Roth IRAs).
Finally, if you have received a damages award in a personal injury lawsuit, you likely can exempt much of this amount. You can keep all of the compensation that you receive based on loss of future earning capacity, the wrongful death of a loved one, or being a victim of a crime. Moreover, you can keep a capped amount of other personal injury damages, except those based on pain and suffering or financial losses.
See the table below for an overview of federal bankruptcy exemptions and what they generally cover.