Protecting Your Assets in Bankruptcy – Exemption Laws
General law
Filing bankruptcy does not mean that you have to give up all of your property. The law wants you to be able to continue to live a productive life. The rules governing which property you can keep from your creditors to avoid being destitute are called “exemptions.”
Exemptions play an important role in all bankruptcy chapters. In Chapter 7, exemptions help determine which property you get to keep. In Chapter 13 and Chapter 11, exemptions help determine how much you’ll have to pay to your unsecured creditors.
Every state has its own bankruptcy exemptions. Federal law also has a set of bankruptcy exemptions. The amount of property you can keep depends on the exemptions you are using. If you live in Connecticut or New York, you can choose either the state or federal exemptions, depending upon which are more favorable for the type of property you are trying to protect.
Generally, you can select the exemption laws of the state in which you reside. But, if you have moved in the last 2 years, the exemption laws of another state or the federal exemptions may apply.
Many exemptions protect specific types of property, such as a home, a motor vehicle or a wedding ring. Sometimes an exemption protects the entire value of the asset. Other times, an exemption only protects up to a certain dollar amount. Some exemptions, called “wildcard exemptions,” can be applied to protect any property. So, if the motor vehicle exemption is not enough to protect the entire value of your car, you can use the wildcard exemption to cover the rest.
Connecticut exemptions
These are the main Connecticut exemptions:
- Homestead: Owner occupied real property, co-op or mobile manufactured home, up to $75,000 (if husband and wife are both on the title, this amount is doubled). The exemption applies to the equity in the home; that is the fair market value of the home minus mortgages and other liens. Underwater homes have no equity to protect.
- One motor vehicle: Up to $3,500 of equity per filer. Equity is the fair market value of the vehicle less the amount of all loans.
- Other personal property, including: household furniture and appliances; food; clothing; bedding; wedding and engagement rings; a family burial plot; health aids; residential utility and security deposits; and assets of spendthrift trusts with anti-alienation provisions.
- Insurance, pensions, and retirement accounts, including: health and disability insurance benefits; life insurance proceeds; ERISA-qualified benefits, including IRA, Keogh and 401(k) accounts; and un-matured life insurance policy with cash surrender value up to $4,000.
- Alimony and child support (subject to certain limits).
- Workers’ compensation, social security, veterans, unemployment benefits and public assistance payments.
- Tools of the trade (for example, tools, books, instruments and farm animals).
- “Wild card” exemption for any property: $1,000.
Federal exemptions
These are the main federal bankruptcy exemptions:
- Homestead: Real property, including mobile homes and co-ops, and burial plots, up to $23,675 (if husband and wife are both on the title, this amount is doubled). The unused portion of homestead, up to $11,850, becomes a wildcard exemption (which gets added to the $1,250 standard federal wildcard exemption) and may be used to protect any other property. The exemption applies to the equity in the home; that is the fair market value of the home minus mortgages and other liens. Underwater homes have no equity to protect.
- One motor vehicle: Up to $3,775 of equity per filer. Equity is the fair market value of the vehicle less the amount of all loans.
- Other personal property, including: household furniture, appliances, goods and clothing up to $600 per item, and up to $12,625 in total. With husband and wife joint filers, the total amount is doubled.
- Jewelry: up to $1,600.
- Insurance, pensions, and retirement accounts, including: illness and disability insurance benefits; life insurance proceeds; tax exempt retirement accounts (including 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans); IRAS and Roth IRAs up to $1,283,025; and un-matured life insurance policy with cash surrender value up to $12,625.
- Personal injury recovery: up to $23,675 for bodily injuries, plus lost earnings payments; no exemptions for pain and suffering or for pecuniary loss.
- Social security, veterans, unemployment benefits and public assistance payments.
- Tools of the trade: up to $2,375.
- “Wild card” exemption for any property: $1,250 plus and unused portion of the homestead exemption up to $11,850.
New York exemptions
These are the main New York exemptions:
- Homestead: Real property, including mobile home, condominium, or co-op, up to $165,550 for property in the counties of Nassau, Suffolk, Kings, Queens, Bronx, Richmond, Rockland, Westchester and Putnam; $ 137,950 for property in the counties of Dutchess, Albany, Columbia, Orange, Saratoga and Ulster; and $82,775 for all other counties (if husband and wife are both on the title, this amount is doubled).
- One motor vehicle: Up to $4,425 ($11,025 if equipped for use by a disabled person).
- Jewelry: wedding ring, jewelry, art, watch up to $1,100.
- Other personal property, including: Household goods and clothing. Aggregate personal property exemptions (including tools of trade & limited annuity exemptions) is limited to $11,025. With husband and wife joint filers, the total amount is doubled.
- Cash (including savings bonds, tax refunds, bank & credit union deposits): up to $5,525 or, if debtor does not use homestead exemption, whatever is left of the $11,025 personal property limit.
- Burial plot up to 1/4 acre without a structure on it.
- Insurance, pensions, and retirement accounts, including: health and disability insurance benefits; life insurance proceeds; ERISA-qualified benefits, including IRA, Keogh and 401(k) accounts; and life insurance policy and annuity contracts (subject to certain limits).
- Personal injury recovery: up to $8,275 for bodily injuries, plus lost earnings payments; no exemptions for pain and suffering.
- Alimony and child support.
- Workers’ compensation, social security, veterans, unemployment benefits and public assistance payments.
- Tools of the trade: up to $3,300.
- “Wild card” exemption for any property: in lieu of homestead exemption, $1,100 of personal property, bank accounts or cash.
Consequences
Selecting the exemptions that best protect your assets can be complicated. At Balbus Law Firm, we take the time to learn about all of your assets, we educate you about the exemption options available to you and we guide you toward the exemptions that best protect your property.