Posts Tagged ‘property exemptions’

Bankruptcy Exemptions – Understanding Federal And State Laws

Considering the confusing mixture of federal and state laws, it is often very difficult to understand what types of properties and assets you can keep as part of bankruptcy exemptions. Therefore, before you go ahead and look into the details of the relevant provisions in different states, you must first be well aware of the basics. Exemption is a term that refers to a particular asset that the laws allow you keep even after you have been declared as bankrupt under chapter 7. On the other hand, bankruptcy estate includes all those assets and properties that you own at the time of (or shortly after) filing your petition and which will be liquidated to pay off your debts to different creditors.

Federal Vs State Laws

While most states provide the debtor an option to choose between federal and state specific bankruptcy exemptions, there are also some states that have completely replaced the federal list with their own set of exemptions. The states where you have an option to choose between the two include Wisconsin¸ Washington, Vermont, Texas, South Carolina, Rhode Island¸ Pennsylvania¸ New Mexico, New Jersey, Minnesota, Michigan, Massachusetts, Hawaii, District of Columbia, Connecticut, and Arkansas. Some states also allow you to get certain properties exempted under federal laws while other assets as per state laws. Even the state provisions in this regard vary significantly from one state to another. For example, you can get your vehicles exempted in Texas for a value of up to $30,000, but the amount is only up to $1,000 in Florida. Likewise, some states allow you to keep your home only up to $10,000 while there are other states that will never take your residential home (it is 100% exempted) irrespective of how much its value is. This way, how the provisions regarding the property exemption are going to affect your life depends largely on which state you live in.

What Are Wildcards?

In some states, you also get an option to use wildcard bankruptcy exemptions. For example, if you are living in a state where you are allowed to keep your car worth $1500 and a wildcard exemption up to $1000, you can keep a car worth of $2000 by using the wildcard worth $500. The actual amount that you are allowed to use as part of wildcard also varies from one state to another.

Residency Requirements – Which State Laws are Applicable in Your Case?

If you are considering filing a petition, you may be planning to move to a state where the provisions for property exemption are more liberal. Before you do that, you must be well aware of the residency requirements that have become stricter with the introduction of the new laws. You must have lived in a state for at least 2 years before the date of filing in order to be eligible to use the exemption laws applicable in that particular state. If you have lived in multiple states during this period, the state where you have lived during the last six months (before the previous 2-year period) will be considered for bankruptcy exemptions. If even during that period, you lived in multiple states, the state where you lived for the longest period will be considered. The complex residency requirements thus do not allow you to choose your “favorite” state just to qualify for the most lucrative exemptions.

The amount of assets and properties that you can get exempted will also depend on your marital status and whether you are filing your petition individually or if it is a joint petition. If you are married and are filing a joint petition, the federal laws allow you to double the amount of bankruptcy exemptions. The provisions in this regard however vary significantly in different states.

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