The Wildcard Exemption in Bankruptcy
Federal law and some states offer a "wildcard" exemption in bankruptcy that can protect any property you choose from creditors.
May 18, 2016
When you file for bankruptcy, you’re allowed to protect a certain amount of property needed to work and maintain a basic standard of living, such as a modest car and household belongings, clothing, and a small amount of tools for your business or profession. However, if you own valuable yet sentimental property, such as your grandmother’s player piano, or your childhood collection of baseball cards, you’d typically be required to relinquish the property to the bankruptcy trustee—the person responsible for overseeing your case—to be sold for the benefit of your creditors. A wildcard exemption, however, comes in handy because it allows you to save property that is important to you and that you wouldn’t be able to protect otherwise.
You’ll find a wildcard exemption in the federal bankruptcy exemption scheme, as well as in many state exemption systems. Which exemptions are available to you depends on the exemption laws of your state. In this article, you'll learn more about how the wildcard exemption works and how it can help you save the property that is near and dear to your heart.
What Is the Wildcard Exemption?
Most exemptions in bankruptcy are specific to a type of property and can only be used to protect that property. Here are a few common federal bankruptcy exemptions:
- $23,675 of equity in your personal residence
- $3,775 in a car or motorcycle
- $12,625 in household goods (furnishings, appliances, bedding, clothing, garden tools, and the like), and
- $2,375 for tools that you need in your business or profession
For example, if your state has a motor vehicle exemption, you’ll only be able to use the amount of that exemption towards your car or another motor vehicle. If you don’t have a car or if the exemption amount is much greater than the value of your car, you cannot apply the balance of that exemption towards any other type of asset. In other words, you couldn’t use your leftover motor vehicle exemption to exempt money in your bank account.
The wildcard exemption is different, however, because it can be used to exempt any property of your choosing. You are not limited to any specific type of property. For instance, you can use it to save your car, money in the bank, expensive artwork, or any other asset you own.
How Much Is My Wildcard Exemption?
Depending on which state you live in, you may or may not be able to take advantage of a wildcard exemption.
Federal wildcard exemption. The federal wildcard exemption is currently $1,250 plus up to $11,850 of any unused portion of the federal homestead exemption. (If you are married and filing a joint bankruptcy, you can double these amounts.) So for a single filer who does not have any home equity, the federal wildcard exemption is $13,100. However, whether you can use the federal wildcard exemption depends on your state. Alaska, Arkansas, Connecticut, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, Wisconsin, and the District of Columbia all allow you to use the federal bankruptcy exemptions instead of your state exemptions. Other states do not.
State wildcard exemptions. Many states also have wildcard exemptions. The amount varies from state to state. Others allow you to apply the unused portion of your homestead to any type of property (which essentially acts like a wildcard exemption). Some states do not have a wildcard exemption at all. (To find your state's wildcard exemption, visit the Bankruptcy Exemptions section of Nolo's Bankruptcy Site.)
How Does the Wildcard Exemption Work?
You use the wildcard exemption to protect the equity in your various assets just like your other exemptions. However, since the wildcard exemption is not limited to a particular type of property, you can use it on any asset. You can also split it between multiple assets, or combine it with other exemptions.
For example, say that your state has a $3,000 motor vehicle exemption and a $5,000 wildcard exemption. If you own two cars, both worth $4,000 each, then you can use the motor vehicle exemption to exempt $3,000 of one car. If the wildcard exemption did not exist, then you would be left with $1,000 worth of nonexempt equity in one car and another car that is completely nonexempt. In this case, the trustee would likely sell both of your cars to pay your creditors (after paying you $3,000 for your exemption). However, with the benefit of the wildcard exemption, you can use $1,000 of it to fully exempt your first car and use the rest to fully exempt your second car. In this way, you can keep both cars.