Bankruptcy Exemptions

In Bankruptcy Code a bankruptcy exemption is a property that cannot be repossessed by a trustee with the purpose to sell and use the earnings to pay off a creditor. Both the state and federal government provide different types of exemptions that can be claimed under the law. In the state of California when a debtor files for a Chapter 7, they may exempt property that is of a certain value.

In most cases, a debtor will file through a Chapter 7 bankruptcy. Under this chapter, the debtor will be required to give up all of their non-exempt property to a United States Trustee. The trustee will be in charge of selling the debtors items (i.e vehicles, a house, jewelry, and other assets). The trustee will use the earnings of the items and will use them to pay off your creditors. Most times creditors with secured debts will be paid off first and then creditors with unsecured debts such as credit card providers will be paid after.

When a debtor files for exemptions through their Chapter 13, they will be required to exempt some of their unsecured debt. How much you will have to pay to your unsecured debt will rely on your location and how the exemption will work towards your debt. When applying the exemption laws to a Chapter 13, you will be required to pay back unsecured debtors a portion of the value of the nonexempt property in your state. For instance, when you file a Chapter 7, you will liquidate all of your assets and every creditor with a claim will receive a portion of the profits. The profits that a creditor would receive in Chapter 7 would be required to be paid off through a Chapter 13 repayment program.

Individuals who are considering a bankruptcy will need to consider a variety of factors that will affect the property they are allowed to keep and the amount of debt that will be paid back to a debtor. In addition, state laws will play a factor in the amount of debt that can be discharged, the eligibility of the debtor when filing for bankruptcy, and the types of debts you incurred. To speak to an attorney about the types of exemptions that affect your case, you may contact the Bankruptcy Attorney at 424-285-5525.

What happens to your property in a bankruptcy?

When you file for bankruptcy, your property will be recognized as an estate. The bankruptcy estate is the property that is handled by a trustee and usually sold off to pay off debtors. Every state and the federal government allow debtors to exempt some property from the bankruptcy. Exempt property in a Chapter 7 case is a property that cannot be liquidated. In Chapter 13, you may be able to keep all of your property. However, the value of all of your non-exempt property will be the amount you will pay to the unsecured creditors. Bankruptcy estate can include any property or asset that you currently own.

What is non-exempt and exempt property?

Every state gives you the opportunity to keep property when you file a bankruptcy. The type of property you are allowed to keep is known as exempt property. The state and government both provide literature on the types of properties that are exempt and how they will affect your bankruptcy. Exempt property laws will let you know what type of property you are able to maintain after you file a Chapter 7. In Chapter 13 the exempt properties will help you determine how much money you will need to pay to any unsecured debtor. Since both the state and federal government provide laws on the type of property that is exempt, you will want to discuss your bankruptcy case with an attorney. The exemption laws will help you determine what type of bankruptcy is right for you. The following will highlight the federal exemption laws and the California exemption laws. Keep in mind that every state provides different exemptions so it is important to consult with a local bankruptcy attorney.

California Bankruptcy Exemptions

Individuals that are filing for bankruptcy in California will be required to use the exemptions provided under Code of Civil Procedure 703. California does not allow debtors to use the federal exemptions so it is important to speak with a local attorney. The state provides the following exemptions:

  • Up to $4,800 for your vehicle
  • Up to $600 dollars in clothing, musical instruments, appliances, books, clothing etc.
  • Up to $1,425 in jewelry
  • Up to $7,175 in tools and professional books
  • Up to $24,060 in total exempt value
  • Up to $1,280 can be applied to any property
  • Unemployment benefits
  • Veteran benefits
  • Disability benefits
  • Alimony and child support

As you will see below, sometimes it is better to use the local exemptions instead of the federal. However, if you are in a state that allows you to use the federal exemptions, you may want to analyze both exemption laws before you decide which one works for you. Debtors in California are encouraged to read the specific language that guides the exemptions under Section 703.

Federal Bankruptcy Exemptions

In bankruptcy, all of your property and assets will be used to determine how much money you will pay off to your creditors. Individuals that file for bankruptcy will need to file a statement of all of their assets and properties so that the trustee has a better understanding of your circumstances. In Chapter 7, the trustee will repossess your non-exempt property and will allow you to keep your exempt property. When you file for bankruptcy, you will need to include a statement of your exempt property. The value of the exempt property may not be over a certain amount.  The federal government provides the following exemptions:

  • Up to $23,675 in home equity
  • Up to $3,775 for your vehicle
  • Up to $12,625 in household items such as furniture, clothing, pets, instruments, books. Each item must be worth less than six hundred dollars.
  • Up to $1,600 of jewelry
  • Up to $2,375 for tools including hardware tools and books
  • Spousal and child support
  • Unemployment benefits
  • Disability benefits
  • Social Security benefits

The Wild Card

California and the federal government provide a wildcard exemption. A wild exemption allows debtors to add value to the exemption of a certain type of property. For instance, if your state provides a wildcard exemption of $10,000 and you want to keep your vehicle which is worth $8,000, you will be able to keep your car. If the state allows debtors to keep up to $3,000 in vehicle value, they may use $5,000 from their wild card to exempt their car. The remaining $5,000 in wildcard exemptions can be used to keep other property. If you are in California, the wild card exemption as of April 2016 is $28,225. In contrast, the federal wildcard is $13,100. You will want to speak with an attorney to see how much property you can keep when you file a bankruptcy. 

The federal government provides exemptions on a variety of monetary assets. If you wish to learn more about the federal exemptions and to see if you qualify, you will want to speak with a local attorney. When you file for bankruptcy, your location will dictate whether you can apply for state or federal exemptions. Currently, if you live in the following states, you may apply for federal exemptions:

  • Alaska
  • Arkansas
  • Connecticut
  • District of Columbia
  • Hawaii
  • Kentucky
  • Michigan
  • Minnesota
  • New Hampshire
  • New Jersey
  • New Mexico
  • New York
  • Oregon
  • Pennsylvania
  • Rhode Island
  • Texas
  • Vermont
  • Washington
  • Wisconsin

The rest of the states require that you use the local exemption laws. In places where you may apply for federal or state exemptions, you will be required to choose one set of exemption laws. The federal exemption laws are adjusted to inflation every three years. The next adjustment will occur in 2019.

Individuals who are filing a federal bankruptcy exemption may double their exemptions if they are filing as a married entity. When you and your spouse file a joint bankruptcy, you may be able to exempt more property than if you file separately. If you are considering a divorce, you may want to consider filing a joint bankruptcy first so that you may keep more of your property and assets. For instance, a married couple may be able to exempt up to $47,350 in home equity and up to $7,550 for their vehicle.

Federal bankruptcy law also includes that you may exempt your retirement funds. Retirement funds that do not exceed $1,283,025 may be exempt when a debtor files for bankruptcy. In addition, debtors are able to use the federal wildcard to exempt any property of their choosing. A wildcard exemption can include up to $13,100 dollars on any property. Furthermore, if you did not use all of your homestead exemptions, you may be able to use that to exempt any property of your choosing. The federal government allows individuals that are filing for bankruptcy the opportunity to keep a large portion of their property and assets. To learn how you can apply the federal laws to your case, you will want to speak with a local attorney. Keep in mind that you may only apply for federal bankruptcy exemptions if you reside in one of the states mentioned above.

Chapter 7 and Chapter 13: The role of exempt property

When a debtor files a Chapter 7, they may keep all of their exempt property. Exempt property is a property that is under a certain value, that you are allowed to keep when you file for bankruptcy. When you file a Chapter 7 bankruptcy, you will hear that all of your non-exempt property will be sold to pay off your debtors. Non-exempt property can include your home, your vehicle, and any other asset of high value. In some cases, a debtor is able to keep all of their property. No asset cases are when a debtor files a Chapter 7 bankruptcy and there are no assets to sell. If you are an individual with no property and you only have credit card and medical bills, then a Chapter 7 may be something you want to consider. As mentioned earlier, the state provides different exemption laws than those provided by the federal government.

In Chapter 13, the non-exempt property plays a bigger role. In Chapter 13 the debtor is allowed to keep all of his or her property. Debtors may keep all of their property, but they will be required to pay all of the non-exempt property in payments to their debtors. For instance, if you keep your car and other high-value assets like jewelry and the total value of the items add up to $3,000, you will be required to pay $3,000 to your unsecured creditors through a repayment program. When you file a bankruptcy, you will know how much overall value you are allowed to exempt from the bankruptcy, any item you choose to keep will become an item that you need to pay off. In Chapter 7 your non-exempt property would be used to pay off your creditors so it only makes sense that they receive some form of payment if you decide to keep your property.

Debtors that are considering a bankruptcy should take some time to discuss the local exemption laws with a local attorney. The bankruptcy exemptions will allow you to make a sound decision about your bankruptcy chapter. For instance, if you are able to exempt all of your property, it may be reasonable to pursue a Chapter 7 as opposed to a Chapter 13. The exempt laws differ from state to state and in some cases, it makes sense to work with the federal exemption. Make sure that your attorney is capable of applying both federal and state laws to your case to make sure you get the most out of your bankruptcy. To speak with the Bankruptcy Attorney, you may contact us at 424-285-5525. We are ready to provide guidance on your bankruptcy and representation in a court of law.