State and Federal Bankruptcy Exemptions

The bankruptcy laws of this country confuse many people, including many attorneys who do not regularly practice in this area of the law. One of the most frequent questions that our firm receives from clients is, "if I file a bankruptcy, will I be able to keep ______." Most often the individual is referring to their home, car, or other household items.

The answer to that question always depends on the client; and any attorney advising a client regarding a possible bankruptcy filing should provide an explanation of the bankruptcy estate, and the exemptions available for various property.

When a debtor files a voluntary petition for bankruptcy, this "creates an estate which is composed of all legal or equitable interests of debtors in property." This includes items one might overlook when considering their assets, such as a recovery under a pending lawsuit, life insurance policies, possible inheritances, annuities, stocks, bonds,

Under 11 USC § 522(d),provides various categories, pursuant to the federal exemptions, of various exemptions that a debtor can claim to exempt out their ownership interest in various assets. If all of the property is within the Debtors' exemptions, the Debtors are likely a "no-asset" case, and, if their income falls within the various standards, would file a Chapter 7 case.

On the other hand, if the client has property valued above and beyond the amount they are entitled to exempt, and would like to keep their interest in that property, they will most likely have to file a Chapter 13 bankruptcy, which is a repayment bankruptcy.

However, while often the federal exemption scheme is used as the favorable to a debtor, there are times when it may benefit a debtor to use their home state exemption scheme. In many states (New Jersey included), a Debtor can either choose to use the state exemptions or the federal exemptions. Experienced bankruptcy attorneys can guide their clients to the exemption scheme which benefits the client the most, and choose accordingly.

There are also many states which have opted out of the federal exemption scheme. Debtors who file a bankruptcy petition in states which have opted out of the federal scheme have no choice but to use the exemptions provided under the law of the state in which they have filed their petition.

A complete list of the states, and whether they allow the federal and state exemptions, or simply the state exemptions, is provided below:

For more information regarding state exemptions, please contact our firm for a consultation with one of our bankruptcy attorney.

The complete list of the federal exemptions, pursuant to 11 U.S.C. § 522(d) are as follows:

(d) The following property may be exempted under subsection (b)(2) of this section:

(1) The debtor's aggregate interest, not to exceed $21,625 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.

(2) The debtor's interest, not to exceed $3,450 in value, in one motor vehicle.

(3) The debtor's interest, not to exceed $550 in value in any particular item or $11,525 in aggregate value, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

(4) The debtor's aggregate interest, not to exceed $1,450 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

(5) The debtor's aggregate interest in any property, not to exceed in value $1,150 plus up to $10,825 of any unused amount of the exemption provided under paragraph (1) of this subsection.

(6) The debtor's aggregate interest, not to exceed $2,175 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor.

(7) Any unmatured life insurance contract owned by the debtor, other than a credit life insurance contract.

(8) The debtor's aggregate interest, not to exceed in value $11,525 less any amount of property of the estate transferred in the manner specified in of this title, in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent.

(9) Professionally prescribed health aids for the debtor or a dependent of the debtor.

(10) The debtor's right to receive-

•(A) a social security benefit, unemployment compensation, or a local public assistance benefit;

•(B) a veterans' benefit;

•(C) a disability, illness, or unemployment benefit;

•(D) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;

•(E) a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless--

•(i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor's rights under such plan or contract arose;

•(ii) such payment is on account of age or length of service; and

•(iii) such plan or contract does not qualify under section 401(a), 403(a), 403(b), or 408 of the Internal Revenue Code of 1986.

(11) The debtor's right to receive, or property that is traceable to-

(A) an award under a crime victim's reparation law;

(B) a payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;

(C) a payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual's death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;

(D) a payment, not to exceed $21,625, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or

(E) a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.

(12) Retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.