In addition to the federal bankruptcy exemptions, the federal government provides nonbankruptcy exemptions to people who qualify based on working in a certain occupation or belonging to a certain group. The term “nonbankruptcy exemptions” can be misleading. It simply means that these are exemptions that are not contained in the formal bankruptcy code. However, they serve the same purpose as bankruptcy exemptions in allowing a debtor to protect their assets. They are different in having no dollar cap on the amount that can be exempted.
Nonbankruptcy exemptions are available only to people who use the state bankruptcy exemptions. They can be used in combination with these exemptions. Each state at least gives a debtor the option to use its own exemptions, and some states require debtors to use the state exemptions. Thus, there is no situation in which the federal nonbankruptcy exemptions will not be available to a qualifying debtor if they choose to use them together with the state exemptions. Assuming that you qualify for them, you may want to weigh the combined protections of the state bankruptcy exemptions and federal nonbankruptcy exemptions against the federal bankruptcy exemptions to get a clearer understanding of which alternative works better for you.
Benefits Covered Under Nonbankruptcy Exemptions
Veterans of the U.S. military, CIA employees, and people on the military Medal of Honor Roll can fully exempt their retirement benefits in bankruptcy. If you worked in the civil service or the foreign service, you also can exempt your retirement benefits. Some less obvious groups that qualify for the exemption of their retirement benefits include railroad workers and people who receive Social Security benefits.
Other types of benefits that may be exempt for people in certain occupations include death benefits, disability benefits, and survivor’s benefits. If you were a government employee, or if you worked as a harbor worker or longshoreman, you can exempt all of your death and disability benefits. People who have served in the military, judges, and a few other types of court employees can exempt survivor’s benefits. Lighthouse workers also can exempt these benefits. Any benefits based on death, injuries, or other losses related to war also are exempt.
Additional Coverage Under Nonbankruptcy Exemptions
Railroad workers, people who work in the maritime industry, members of the military, and certain other groups may be able to claim additional nonbankruptcy exemptions. Railroad workers can exempt their unemployment benefits, while seamen can exempt any debts incurred while on a voyage, as well as their professional clothing. Seamen also can exempt their wages, except for any portion of them that goes toward spousal or child support. Members of the military can exempt group life insurance and deposits to savings accounts that they made when they were stationed on permanent duty in another country. People who are filing for bankruptcy can exempt funds received from selling or leasing Indian lands or homesteads.
More generally, a federal nonbankruptcy exemption covers an amount equal to the greater of 30 times the federal minimum hourly wage or 75 percent of the debtor’s earned but unpaid wages. If a debtor has a very low income, the bankruptcy judge may permit them to cover a larger amount of their wages under this exemption.