The bankruptcy act exempts certain property of the estate of an individual debtor so that he or she will not be impoverished upon discharge. Exactly what is exempt depends on state law.
Notwithstanding the Constitution’s mandate that Congress establish “uniform laws on the subject of bankruptcies,” bankruptcy law is in fact not uniform because the states persuaded Congress to allow nonuniform exemptions. The concept makes sense: what is necessary for a debtor in Maine to live a nonimpoverished postbankruptcy life might not be the same as what is necessary in southern California. The bankruptcy code describes how a person’s residence is determined for claiming state exemptions: basically, where the debtor lived for 730 days immediately before filing or where she lived for 180 days immediately preceding the 730-day period. For example, if the debtor resided in the same state, without interruption, in the two years leading up to the bankruptcy, he can use that state’s exemptions. If not, the location where he resided for a majority of the half-year preceding the initial two years will be used. The point here is to reduce “exemption shopping”—to reduce the incidences in which a person moves to a generous exemption state only to declare bankruptcy there.
Unless the state has opted out of the federal exemptions (a majority have), a debtor can choose which exemptions to claim. 1 There are also some exemptions not included in the bankruptcy code: veteran’s, Social Security, unemployment, and disability benefits are outside the code, and alimony payments are also exempt under federal law. The federal exemptions can be doubled by a married couple filing together.
Here are the federal exemptions: 2
Homestead:
- Real property, including mobile homes and co-ops, or burial plots up to $20,200. Unused portion of homestead, up to $10,125, may be used for other property.
Personal Property:
- Motor vehicle up to $3,225.
- Animals, crops, clothing, appliances and furnishings, books, household goods, and musical instruments up to $525 per item, and up to $10,775 total.
- Jewelry up to $1,350.
- $1,075 of any property, and unused portion of homestead up to $10,125.
- Health aids.
- Wrongful death recovery for person you depended upon.
- Personal injury recovery up to $20,200 except for pain and suffering or for pecuniary loss.
- Lost earnings payments.
Pensions:
- Tax exempt retirement accounts; IRAs and Roth IRAs up to $1,095,000 per person.
Public Benefits:
- Public assistance, Social Security, Veteran’s benefits, Unemployment Compensation.
- Crime victim’s compensation.
Tools of Trade:
- Implements, books, and tools of trade, up to $2,025.
Alimony and Child Support:
- Alimony and child support needed for support.
Insurance:
- Unmatured life insurance policy except credit insurance.
- Life insurance policy with loan value up to $10,775.
- Disability, unemployment, or illness benefits.
- Life insurance payments for a person you depended on, which you need for support.
In the run-up to the 2005 changes in the bankruptcy law, there was concern that some states—especially Florida 3 —had gone too far in giving debtors’ exemptions. The BAPCPA amended Section 522 to limit the amount of equity a debtor can exempt, even in a state with unlimited homestead exemptions, in certain circumstances. (Section 522(o) and (p) set out the law’s changes.)
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