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From: Martha Warriner Jarrett
One of the most important things to consider when you are filing for bankruptcy is the exemptions that are available. Think of them as an “allowance” that is available to protect your assets. If the value of your possessions (based on used or thrift shop values) is less than the exemption, you can keep those assets. Exemptions allow most individual debtors to keep everything they own while discharging their debts.
Here are some of the common exemptions categories
Home equity
One or more automobiles
Clothing and jewelry
Furniture and household goods
Tools of the trade
Spousal or child support income
Most insurance benefits
Most public benefits, including Social Security
Retirement accounts
Most personal injury awards
No matter how simple I try to make it, the topic of exemptions is a complex one that depends, in large part, on where you live and if you have any valuable assets, such as a home.
There are two kinds of exemptions available to most debtors: the Federal set and a separate set for the state where you live. I’ll talk about the Federal ones first because, unless you own a home, those are probably the ones that you’ll want to use. You can find out if your state allows you to use the Federal exemptions at The Bankruptcy Site.
Under the Federal exemptions, you can exempt (a) your home equity - $27,900 ($55,800 for joint spouses who co-own property), (b) car(s) - $4,550, (c) up to $14,875 ($700 per item) for household goods, furniture, etc., (d) over $1.5 million for retirement accounts, (e) some miscellaneous exemptions like tools of the trade, (f) and a “wildcard” exemption (can be applied to anything, including the non-exempt value of assets like automobiles) of $1,475, plus the unused portion of the homestead exemption up to $13,950. You can see why most individual debtors are able to protect all their assets using these exemptions.
If your state doesn’t allow the Federal exemptions, you’ll have to use your state exemptions. And if you own a home, your state homestead exemption is probably bigger than the federal one.
In California, you can’t use the Federal exemptions, but you have your choice of two sets of exemptions. One is like the Federal exemptions. The other is unique to California and is where you’ll find California’s generous homestead exemption (for 2023, the minimum homestead exemption is $339,189.00 and the maximum is $678,378.01, depending on the county you live in).
Some states have no homestead exemption. Others are unlimited in amount. You can find a list of each state’s homestead exemption on Ascend’s website.
Each state has different requirements for using its homestead exemption and the Bankruptcy Code has a residency requirement (3.3 years) before some homestead exemptions can be used. In all cases, you must reside in the home on the petition date. If you have a lot of equity to protect, consult a local attorney. Don’t try to figure it out yourself.
As I said at the beginning, exemptions are complicated. If you have assets you want to protect, you shouldn’t take chances by trying to figure it out yourself. Consult an attorney. It’s a wise investment.
Tip for the Week: Most bankruptcy attorneys offer free consultations. Take advantage of this freebie by consulting a local attorney who can answer your questions and give you advice tailored to your individual situation. There’s also a lot of information online on sites such as the Bankruptcy Court, Upsolve, and my website, BankruptcySage, but be careful about taking the advice of people on sites like Facebook. People are well-intentioned but often don’t know what they’re talking about.
Martha Warriner Jarrett