Bankruptcy Bliss

The federal government is responsible for regulating and overseeing the Bankruptcy proceedings in the United States. They have set up guidelines regarding what items can be exempt from creditors attempts at collection. Congress does allow states to decide whether to follow the federal guide or to set up their own guidelines. Sixteen states allow their residents to choose which set of guidelines to use and the rest have no say in it. Over all the guidelines are set up to protect the debtors from losing everything so they tend to be willing to do what they have to. They would rather keep what they can then lose everything.

Understanding Federal Exemptions in Bankruptcy

The Bankruptcy laws are federal legislation enacted by Congress. These laws were updated as recently as October 2005. The revised law established a standard set of exempt property bankruptcy files can exclude from creditors. Congress allowed states to opt-out of those exemptions and create their own set of exemptions. Sixteen states allow their citizens to choose between the federal guidelines or the states guidelines. Those states that follow Congresses guidelines are:

Arkansas  New Mexico
Connecticut   Pennsylvania
District of Columbia  Rhode Island
Hawaii   South Carolina
Massachusetts  Washington
Michigan   Wisconsin
Minnesota   Vermont
New Jersey  Texas

When reviewing the various exemptions, the value of the asset refers to the present value of the asset or replacement value. Married couples are allowed to double the value if both are included in the bankruptcy proceedings.

Federal Exemptions [United States Bankruptcy Code 11 United States Code Sec. 522(d)]: include the following:

Primary Residence – Equity in our house including co-op or mobile home is exempt up to $17,450. If you can’t use your entire exemption, you can apply any remaining credit up to $8,725 to any other property. You can also use this exemption for a burial plot.

Pensions/Retirement Plans – Any ERISA-qualified pension plan benefits that is required for support.

Insurance – Disability payments, life insurance payments (for persons who depend on debtor), life insurance policy with value less than $9,300 in dividends or interest and life insurance contracts.

Public Benefits – Exempt from bankruptcy include Social Security and Veteran Benefits, Unemployment Compensation, Public assistance and compensation as a crime victims.

Personal Property including animal or pets, crops, personal clothing, books, household appliances, home furnishings, household goods, health aides (i.e.: wheelchair), Jewelry (valued to $1,150), musical instruments (up to $425 per item), motor vehicle (worth less than $2,775), recoveries from personal injury (up to $17,425 but excluding amounts designated for pain and suffering or financial loss) and wrongful death recoveries for person debtor depended on for support.

Miscellaneous Expenses – defined as Alimony payments received and child support required for support.

Tools of the Trade – Items required allowing you to continue to earn a living at your trade such as special or work related tools, implements, books, specific tools of trade with a total value up to $1,750.

Wildcard – In addition to the specific exemptions previously mention, you can use a special $925 exemption of any property.

If you’re in one of the sixteen states which recognize the Federal exemption statute, you can choose the more favorable exemption list. It’s also important to review states residency requirements for bankruptcy filing, since a neighboring states statute might be more advantageous for you.