Exemptions: What can I keep if I file bankruptcy?
The bankruptcy code allows each individual who files bankruptcy to
keep basic assets deemed necessary for the debtor's "fresh start"
after bankruptcy. That property is the debtor's "exempt property".
The debtor claims property as exempt in the schedules
that are filed to initiate the case. If no objections are filed
to the exemptions, they become final 30 days after the
meeting of creditors. Exempt property is then no longer
property of the bankruptcy estate.
When everything is exempt
Most Chapter 7 cases are no-asset
cases: that is, the debtors give up nothing to the trustee
for the following reasons:
First, the exemption systems permit debtors to retain the means
of day- to- day living, free from the claims of their creditors.
The point of bankruptcy is to get a fresh start and that is only possible
if the debtor has something to start with.
Second, used household goods and personal effects have little resale
value, and so do not represent a real source of value to repay creditors.
Pension rights and 401(k) plans, frequently the largest or second largest
asset of most families, are not property
of the estate. Since retirement plans are outside the estate,
the debtor doesn't have to exempt them to keep them.
IRA's and other retirement savings may be property of the estate but
are frequently exempt. See Property
of the estate and Retirement
savings in bankruptcy. The 2005 amendments to the Bankruptcy Code
increased the exemption for IRA's for all debtors, regardless of state
of residence, to $1million.
Exemptions in Chapter 13
How much can I exempt?
Exemptions are the one place where bankruptcy law varies from state
to state. Congress created a set of exemptions in the bankruptcy
code but allowed each state to opt-out of those exemptions in favor
of the state exemptions.
Sixteen states allow
debtors to elect the bankruptcy
code exemptions. In those states, debtors get their choice
between the federal exemptions and those in the law of their state.
For the balance of the states, only the state exemptions can be selected.
You need to consult state law for the list of exemptions available to
you. Federal bankruptcy exemptions
increase April, 2010.
Which exemptions apply?
The 2005 bankruptcy changes
have altered the rules about which exemptions apply. In summary, you
must have lived for two years in the state in which you are filing bankruptcy
to use the exemptions of that state. If you haven't lived there for
2 years, then the exemptions of the state in which you lived in the
six months beyond the two year look back period apply. If no state's
exemptions are available, you are entitled to use the federal exemptions.
How do I calculate what's exempt?
The values in the exemption statutes refer to the present sale
value of the item (not its purchase price or its replacement value).
If an asset is subject to a mortgage or a lien, it is the value of
the item after deducting the amount of the lien or
liens (the equity) that is used to figure the exemption. Some
liens can be avoided to create exempt equity. Explore
The law looks only to the value of the debtor's share
of the equity in an item if it is co owned.
exemptions by planning
Exemptions in Chapter 13