Bankruptcy Exemptions - Federal & All States

Federal Bankruptcy Exemption Laws, Amounts, and Limits

The U.S. Code provides for the application of federal bankruptcy exemptions in both Chapter 7 and Chapter 13 cases. In Chapter 7, all excluded property must be surrendered to the trustee unless specifically allowed by a bankruptcy exemption. In Chapter 13, the Code takes a less direct approach, providing, as a condition of plan confirmation, creditors must receive value at least equal to or greater than would be distributed if the case had been liquidated in Chapter 7. Chapter 13 plan confirmation depends on individual bankruptcy exemptions to pass this test.

In a 14 states, debtors are allowed the option of selecting either state or federal bankruptcy exemptions, but are not allowed to mix or match the most beneficial provisions of both. In summary, the federal exemptions must be designated on the debtor's exemption claim Form H which allows debtors to choose among the following bankruptcy exemptions:

• $18,750 appraised equity value for real estate homestead, or personal property utilized as a residence
• $2,575 for 1 motor vehicle which may be used as personal transportation
• $425 per individual item, and up to a total of $8,625 allocation for ordinary household items
• a total of $1,075 for personal jewelry is permissible
• a $850 wild card allotment, plus up to $8,075 of any remaining authorized but unassigned portion of the federal homestead exemption may be used to exempt any assets, including cash and cash equivalents
• $1,625 for professional gear and necessities for career
• unmatured life insurance contracts, excepting all policies, claims or causes of action for credit life benefits
• health aids and prosthesis prescribe by a personal physician
• Social Security Benefits, expected unemployment compensation, and proceeds from public assistance programs
• veterans benefits a preparations from foreign wars
• payments for disability, whether resulting from injury, illness or other causes
• court ordered alimony payments and child support compensation, but only up to the extent essential for support
• stock bonuses, retirement pensions, profit-sharing plans, contractual annuity contracts or similar benefit plans covering illness, physical disability, mental infirmity, death, or length of service are exempt only up to the extent essential for continued support
• compensation provided to victims of crimes, funds received for wrongful death, personal injuries, and physical or mental incapacity, to the extent essential for continued support

Practice Tip - Statutory values provided by Sec. 522 change periodically in response to changes in the consumer price index. The appearance of statutory updates in the United States Code may be slow. Also remain aware that bankruptcy chapter 7 exemptions applications differ significantly from the confirmation test that incorporates bankruptcy chapter 13 exemptions. Nevertheless, the same statutes apply in both situations.

Practice Tip - Items covered and corresponding values vary greatly from state to state. A few states provide generous allowances, while other states limit items and values to the threshold of poverty. State residency requirements also vary providing the minimum time required to claim state allowances. Bankruptcy courts highly discourage forum shopping as a means of maximizing property retained. Federal law requires a minimum of 2 years state residency to claim state exemptions.

Practice Tip - Recent amendments limit the maximum homestead value under state exemptions to a federally determined dollar amount. These amendment were contained in the Bankruptcy Abuse Prevention Act.