Bankruptcy is a powerful tool under federal law that lets families and individuals get back on their feet after dealing with debt.
Many people assume that, in order to get this fresh start, they need to give up everything they own, down to the last penny. Fortunately, this is not true.
While bankruptcy is governed by federal law, Georgia filers must rely on state exemptions, rather than federal exemptions, when calculating the amount of the exemption. To learn more about Georgia-specific exemptions, read this article.
Filers in Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin have the opportunity to opt for either federal or state exemptions.
Why are exemptions important?
Exempt property is a property that you can keep after filing for bankruptcy. Maximizing your exemptions will allow you to keep the maximum amount of property. This means that you may lose very little when filing for your bankruptcy, other than the filing costs and attorney fees.
It is important to note that exemption values change at the federal level every three years. The current exemption values listed below reflect the most recent updates in 2016. The values will be changed again in 2019.
Spouses filing for bankruptcy together are allowed to double the value of exemptions they claim.
Federal homestead exemption
The homestead exemption is the most common exemption claimed by bankruptcy filers. Filers can claim up to $23,675 in equity in their home. If a married couple files jointly, this amount can be doubled to $47,350
It is important to note that this exemption cannot be claimed for investment or vacation property. It is intended to be used for real property, including motorhomes and unimproved land you intend to live on in the future.
Related article: “Can I File Chapter 13 and Keep My House?”
Anything you own that is not your house or land is considered personal property. The Federal Bankruptcy Code provides certain exemptions for a number of different types of property.
Your motor vehicle
Federal law allows each spouse to claim an exemption of $3,775 for one motor vehicle, be it a car or a motorcycle.
In addition to being able to claim exemptions for your home and your vehicle, you are also allowed to exempt specific types of personal belongings up to a certain amount as follows:
Household goods and furnishings: you are allowed to keep up to $600 per individual item and an aggregate of $12,625 for household goods and furnishings, which include:
- Musical instruments, and
- Other household goods
Tools of trade: you are allowed an additional exemption of $2,375 for professional books and equipment needed for your profession
Jewelry: you are allowed $1,600 in federal exemptions for any jewelry you own.
Health aids: you can keep any and all medically necessary aids prescribed by a professional for you and your dependents, such as a sleep apnea machine prescribed by a physician.
Wildcard exemption: in addition to these types of physical property, you may exempt up to $1,250 plus $11,850 of any unused portion of your homestead exemption to use toward any property of your choosing.
Other types of property
In addition to your physical things, there are certain amounts of property that you own but cannot touch.
Assistance payments are considered exempt property. You will continue to receive all social security, unemployment, disability, public assistance payments, and veterans’ benefits you are entitled to.
Spousal, alimony, and child support payments that are reasonably necessary for your support are exempt.
Crime victim compensation, wrongful death awards, and compensation for loss of future earnings are also exempt.
Personal injury awards are also exempt up to $23,675, excluding pain and suffering or pecuniary loss. If you were in a car accident or may have another legal claim that you have not yet pursued, talk to your bankruptcy attorney about your options for the claim before filing. Failure to list such a claim under an exemption may result in you being foreclosed from pursuing this claim at a future time.
Tax-exempt retirement accounts, including 401(k)s are exempt without regard to their value. However, IRAs and Roth IRAs are capped at $1,283,025. Educational IRAs are exempt without regard to value.
Life insurance is also exempt. Unmatured life insurance contracts are fully exempt. Matured life insurance contracts are exempt for a loan value up to $12,625.
This article does not provide legal advice. Contact The Law Office of John B. Kelly online or call us at 770-637-1756 to discuss your questions about filing for bankruptcy, including what exemptions your family qualifies for under federal and state law.