May 17, 2016
When you file for bankruptcy, your property becomes part of what is known as the “bankruptcy estate.” You don’t lose all of your property, however (and many people are able to keep most, if not all of what they own). Bankruptcy exemption laws tell you what property you’re allowed to keep in a Chapter 7 bankruptcy and help determine how much you must pay certain creditors in Chapter 13 bankruptcy.
Federal law sets forth a list of exemptions called the federal bankruptcy exemptions. Your state law determines whether you can use federal exemptions or whether you must use your state property exemption list. In this article, you’ll learn more about which exemption law you must use, as well as the type of property exempted under the federal bankruptcy law. (To learn how exemptions work, see our Bankruptcy Exemptions area.)
The answer depends on which state you live in because ultimately, your state decides what property you can, and cannot, keep. Here is how it works.
Every state has its own unique set of bankruptcy exemptions. Federal law has a set of bankruptcy exemptions, as well. It is found in the federal bankruptcy code and doesn’t differ from state to state. Although most states require bankruptcy filers to use the state exemptions set forth in the state’s statutes, some states allow filers to choose between the state bankruptcy exemptions or the federal bankruptcy exemptions. If you have a choice, you must choose one or the other—you cannot mix and match items in both lists.
Currently, if you live in one of the following states, you can choose to use the federal bankruptcy exemptions: Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin. If you don't reside in one of these states, then you cannot use the federal exemptions. You're limited to your own state’s exemptions.
The federal bankruptcy exemption amounts are adjusted every three years in April and the last adjustment occurred in 2016. You’ll find current, commonly-used federal exemptions listed below. If you are a married couple filing jointly, you can double the exemption amounts.
You can currently protect $23,675 of equity in your principal place of residence under the federal exemptions. You’ll use the homestead exemption to protect the equity in residential real estate, such as a house, or personal property that you use as a residence (such as a residential trailer). However, keep in mind that you cannot use the homestead exemption to protect equity in your investment or rental properties. You must live in the dwelling to use the exemption. (To learn how this important exemption plays a role in your Chapter 7 or Chapter 13 bankruptcy, see The Homestead Exemption in Bankruptcy.)
Personal property includes all property you have other than real estate. The following are some of the most important federal personal property exemptions:
Retirement accounts that are exempt from taxation, which usually include most genuine non-fraudulent retirement accounts, are fully exempt. However, there is a cap of $1,283,025 on IRAs and Roth IRAs. (To learn more, see Your Retirement Plan in Bankruptcy.)
You can apply the federal wildcard exemption to any property you own. Currently, $1,250 plus $11,850 of any unused portion of your homestead exemption is available to exempt any property of your choosing. (To learn more, see our article on the Wildcard Exemption).