Federal Exemptions in Bankruptcy Or What Can We Keep?

What are the federal exemptions in bankruptcy? When should a debtor use the federal exemptions as opposed to the Massachusetts exemptions? Only about twenty states allow the debtor to choose whether to use that state’s exemptions or the federal exemptions. While Massachusetts’ residents have the option of either, but not both, the Massachusetts exemptions are generally only elected when there is significant equity in a home. Otherwise, the federal exemptions are generally used.

Married couples filing together can each claim a full set of the federal exemptions.

Schedule C of the Bankruptcy Petition

Schedule C of the Bankruptcy Petition and Schedules may be the most important part of the filing. Why? Because the exemptions you list on Schedule C are what you get to keep. And you must list them all. You must be sure to claim the federal or state elections on this Schedule. An experienced Massachusetts bankruptcy lawyer will be sure to exempt each and every asset you can.

Electing 11 United States Code, Section 522 (b)(2) is the federal exemptions.

The Extent of the Federal Exemptions

Your home equity is exempt up to $22,975. This is much more restrictive than the Massachusetts Homestead exemption. However, if your home equity is nominal, or you don’t own a home, you can use $10,825 of the unused portion of this exemption for other property! See 11 United States Code, Section 522 (d)(1), (d)(5).

Note that if you are a recent transplant, under federal law you can only use the state homestead exemption up to $155,675.

Retirement benefits from 401k accounts, 403b accounts, IRAs, Roth IRAs, Keough accounts, are exempt up to $1,245,475. This exemption may be more generous than the Massachusetts exemption and your retirement accounts should be carefully reviewed by an experienced bankruptcy lawyer before filing. See Section 522(d)(12) and (n).

The motor vehicle exemption in federal law is more restrictive. You can exempt up to $3,675 under Section 522 (d) (2), however, you can use the “wildcard” exemption if your vehicle has more equity.

Life insurance benefits from a policy from a person who the debtor was a dependent of are exempt. See Section 522 (d)(11)(C). A life insurance policy loan value up to $12,475. See Section 522 (d)(8).

Disability, illness or unemployment benefits policies are exempt. See Section 522 (d)(10)(C).

All alimony and child support. See Section 522 (d)(10)(D).

The value of your personal injury lawsuit is exempt up to $2,975, however, pain and suffering is exempt. See Section 522 (d)(11)(D).

Wrongful death recoveries for a parent, guardian or provider are exempt. See Section 522 (d)(11)(B).

Health aids are exempt. See 522 (d)(9).

Jewelry is exempt up to $1,550. See 522 (d)(4).

Lost earnings are exempt. See Section 522 (d)(11)(E).

Personal items such as animals, clothing, appliances, books, furnishings, household goods and musical instruments are exempt at $575 per item or $12,250. See 522 (d)(3).

Public assistance is exempt as follows: federal public assistance, Social Security, unemployment compensation, veteran’s benefits, are exempt under Section 522 (d)(10)(A) and crime victim’ compensation is exempt under Section 522 (d)(11)(A).

Finally, there is a federal wildcard exemption of $1,150 plus up to $11,500 in unused homestead exemption. See 522, Section (d)(5).

Per the 2005 bankruptcy law, the Bankruptcy Court adjusts the federal exemptions every three years. The adjustment is based on the federal Consumer Price Index each April 1. The above exemptions were adjusted on April 1, 2013.

Why Do I Need a Bankruptcy Lawyer if the Federal Exemptions are Clear?

The exemptions may be clear, but your situation may require pre-bankruptcy planning.  Your assets may not be properly lined up to protect them from the Trustee in Bankruptcy.  An experienced bankruptcy lawyer knows what debts can be discharged and will be sure to include them all.  Also, if you are counting on the Homestead, you may need a lawyer to determine if you should file using the federal or state bankruptcy exemptions.