Bankruptcy Exemptions

Bankruptcy exemptions are a legal mechanism available to bankruptcy debtors. Exemptions have a different purpose in a Chapter 7 bankruptcy than they have in a Chapter 13 bankruptcy, but the overarching objective is to reduce the size of the bankruptcy estate to allow the debtor to keep more money and property.

The Bankruptcy Estate and the Bankruptcy Trustee

When a debtor files a bankruptcy case, a bankruptcy estate is created. The estate consists of the assets and liabilities the debtor had at the exact moment he or she filed bankruptcy. The court appoints a trustee to administer the estate. The trustee's job is to make sure that any nonexempt value in the estate goes to the debtor's creditors.

Example: If a debtor files bankruptcy and owns $40,000 worth of property but can only exempt $30,000, the trustee must make sure that creditors receive the $10,000 difference.

State Versus Federal Exemptions

Bankruptcy is governed by federal law. Section 522 of the Bankruptcy Code provides a list of exemptions that debtors can use to exempt property from the estate. These exemptions allow debtors to exclude from the estate certain property up to a certain dollar amount in value.

Example: The Bankruptcy Code allows debtors to exempt up to $3,450 in value of one motor vehicle. If a debtor owns a car with $5,000 in equity, $3,450 of that equity is protected. The remaining $1,550 is nonexempt, meaning it becomes part of the bankruptcy estate.

States also have lists of exemptions. Federal bankruptcy law allows debtors to use state exemptions instead of federal exemptions. But it also allows states to opt out of the federal scheme -- which means debtors can only use state exemptions. Currently, sixteen states allow debtors to choose between state and federal exemption schemes. In these states you must use one or the other -- you can't mix and match. The rest of the states require debtors to use the state exemptions; using the federal exemptions is not an option. California is unique in that it allows debtors to choose from two different state exemption lists.

Debtors using state exemptions may also use a list of exemptions called the federal nonbankruptcy exemptions.

Once the exemptions are determined, the fate of the debtor's property depends on whether the debtor is in Chapter 7 bankruptcy or Chapter 13 bankruptcy.

Exemptions in Chapter 7: Protecting Your Property

Chapter 7 bankruptcy is a liquidation bankruptcy. A Chapter 7 trustee's duty is to liquidate the debtor's nonexempt assets and use the money to repay creditors. Most Chapter 7 cases are no-asset cases, because most debtors are able to use exemptions to protect all their money and property.

If the debtor is not able to exempt all his property, the debtor can either pay the trustee the nonexempt value of the property or allow the trustee to sell the property. Once the trustee has the funds from liquidating the property, he or she will distribute the money to unsecured creditors in the manner the Bankruptcy Code requires.

Example: If a debtor's car is worth $5,000 and the debtor exempts $3,450 of that value, the debtor can either pay the trustee $1,550 to keep the vehicle, or the trustee can sell the vehicle and pay the debtor $3,450 while distributing the $1,550 of nonexempt value to unsecured creditors.

To learn more about how Chapter 7 bankruptcy works, see Chapter 7 Bankruptcy.

Exemptions in Chapter 13: Reducing Your Payment

Chapter 13 bankruptcy does not work like Chapter 7. In a Chapter 13 case, the debtor proposes a repayment plan in which, over a three- to five-year period, the debtor pays back some or all of his debts to a Chapter 13 trustee, who distributes the funds to creditors. The Bankruptcy Code provides that creditors in a Chapter 13 case must receive at least what they would have received if the debtor had filed Chapter 7; therefore, if the debtor has nonexempt assets, he or she must pay enough into the Chapter 13 plan to provide at least that nonexempt amount to the unsecured creditors. The more nonexempt property the debtor has, the higher the Chapter 13 plan payment will be. Exemptions help reduce the amount the debtor must pay into the Chapter 13 plan.

Example: If a debtor has $1,550 of nonexempt equity in a car, the debtor must pay enough into the Chapter 13 plan to provide $1,550 to unsecured creditors over the life of the Chapter 13 plan.

To learn more about Chapter 13 and how the repayment plan works, see Chapter 13 Bankruptcy.

Which State Exemption System Can You Use?

Which state exemption system you can use depends on where you've been living for the last few years. Homestead exemptions (exemptions protecting the home you live in) have different requirements.

State Bankruptcy Exemption Laws

• Alabama: Debtors are only allowed to claim state bankruptcy exemptions. Homeowners can claim up to $5,000 in exemptions; however, before they attempt to sell their home, they must record a homestead declaration.
• Alaska: Alaska allows those filing for Chapter 7 bankruptcy to claim either state or federal exemptions. The state homestead exemption equals $70,200.
• Arizona: Chapter 7 bankruptcy laws in Arizona allow residents to claim on state exemptions. Couples filing jointly may double personal property exemptions but not homestead exemptions.
• Arkansas: Filers are allowed to claim either state or federal exemptions sets, although they may not combine the two. The head of a family is allowed an unlimited homestead exemption for up to ¼ acre within city limits or 80 acres elsewhere.
• California: Only state bankruptcy exemptions apply in California. However, there are two exemption systems within state statutes from which debtors may choose.
• Colorado: Colorado allows debtors to claim only state bankruptcy exemptions. Real property exemptions for homestead values up to $60,000; and up to $90,000 for those over age 60 or disabled.
• Connecticut: Either state or federal property exemptions are available to debtors filing for Chapter 7 bankruptcy. Filers may claim homestead exemptions up to $75,000 for petitions filed after 1993 and up to $125,000 for judgments resulting from hospital services.
• Delaware: State laws allow on state exemption claims in Chapter 7 bankruptcy filings. Exemptions claims cannot exceed $25,000; however, they are subject to doubling for couples filing jointly.
• Florida: Only state bankruptcy exemptions apply for Florida residents. Homestead exemptions equal an unlimited value for real or personal property, mobile or modular homes, and condominiums.
• Georgia: Georgia requires that all debtors filing for bankruptcy use only Georgia state exemptions. The Georgia homestead exemption equals up to $10,000, or $20,000 if married, with up to $5,000 of the unused portion applicable to other personal property.
• Hawaii: Both federal and state bankruptcy exemptions are allowed in under state law. The homestead exemption equals up to $20,000, or $30,000 for the head of the family or someone over 65, with sale proceeds applying for exemptions for 6 months after a sale.
• Idaho: Idaho state exemptions are the only exemptions allowed for debtors filing bankruptcy. Real property or a mobile home are exempt up to $100,000, with sale proceeds exempt for up to 6 months.
• Illinois: Illinois statutes allow only state exemptions for those filing for Chapter 7 bankruptcy. The Illinois homeowner’s exemption applies to real or personal property, including farms, condos, co-ops, or mobile homes, up to $15,000.
• Indiana: State exemptions alone apply to Chapter 7 bankruptcy petitions in Indiana. The state homestead exemption for real or personal property that is used as a residence, up to $15,000.
• Iowa: Federal bankruptcy exemptions are not available in the state of Iowa. There is an unlimited homestead exemption for real property or apartments that do not exceed ½ acre within city limits or 40 acres outside of those limits.
• Kansas: Kansas allows only state exemptions to be available to debtors filing within the state. Exemptions for real property, mobile homes, or manufactured homes are unlimited for property 1 acre or less within city limits, or 160 acres outside city limits which the debtor occupies or intended to occupy at the time of filing.
• Kentucky: State exemptions only are available to debtors in Kentucky. The homestead exemption in Kentucky for real or personal property used as a family residence is up to $5,000.
• Louisiana: Louisiana allows only state exemptions for residence filing for Chapter 7 bankruptcy. The state homestead exemption for occupied property is up to $25,000 for 5 acres or less within municipality limits or 200 acres outside those boundaries, although if debt is the result of a catastrophe or terminal illness or injury, the full value of the property 1 year before filing is exempt.
• Maine: Federal bankruptcy exemptions are not available to Maine residents. The exemption for real property or a co-op that is used as a residence equals $47,500, which can increase to $90,000 for those over 60 years of age, disabled, or supporting minor dependents.
• Maryland: Maryland allows only state statutes for property exemptions. Maryland does not allow a homestead exemption, although up to $5,000 in personal property up to a total of $12,000 for various categories.
• Massachusetts: Massachusetts residents may claim either federal or state property exemptions. The state allows a homestead exemption of up to $500,000 in property that is occupied or that the filer intends to occupy, although joint filers may not double that amount.
• Michigan: Both federal and state property exemptions apply to state residents. For real property or condominiums equaling 1 city lot or 40 acres outside city limits, the state property exemption is up to $34,450 or up to $51,650 for those over 65 or disabled
• Minnesota: Minnesota permits residents to claim either federal or state bankruptcy exemptions. Homestead exemptions for property and its land, up to $300,000, or $750,000 for farms, up to ½ acre within city limits or 160 acres elsewhere. Manufactured homes carry an unlimited exemption.
• Mississippi: Only state exemptions are available to Mississippi residents filing for bankruptcy. For real property that is occupied at the time of filing, the state exemption is $75,000 for 160 acres or less.
• Missouri: Missouri allows only state property exemptions for those filing Chapter 7 bankruptcy. There is a $15,000 real property exemption, and a $5,000 exemption for mobile homes.
• Montana: State exemptions are the only claims available to Montana residents. The state allows a $250,000 homestead exemption for real property or mobile homes that are occupied at the time of filing.
• Nebraska: Nebraska requires those filing for bankruptcy to claim on state exemptions. Heads of household or married debtors may claim up to $60,000 in homestead exemptions for no more than 2 lots within city limits or 160 acres outside those limits.
• Nevada: Nevada law states that federal bankruptcy exemptions are not available to state residents. There is a $550,000 homestead exemption for real property or mobile homes.
• New Hampshire: Either state or federal exemptions are available to New Hampshire residents filing for bankruptcy. Residents may claim up to $100,000 for real property or a manufactured home.
• New Jersey: New Jersey allows those who are filing for bankruptcy to use either federal or state exemptions. There are no provisions in New Jersey state exemptions for homestead property, although there are up to $2,000 in personal property exemptions.
• New Mexico: Either federal or state exemptions are available to debtors filing for Chapter 7 bankruptcy in New Mexico. The homestead exemption, for those filing jointly, is $60,000.
• New York: New York allows only state bankruptcy property exemptions. Real property, including mobile homes, condominiums, or co-ops, is exempt up to $50,000.
• North Carolina: Only North Carolina exemptions are available to state residents filing for bankruptcy. The homestead exemption for real or personal property, including a co-op, used as a residence is up to $18,500, with up to $5,000 of that exemption that is unused available for application to any personal property.
• North Dakota: North Dakota residents do not have the opportunity to claim federal bankruptcy exemptions. The homestead exemption for real property, mobile homes, or house trailers is up to $100,000.
• Ohio: Federal property exemptions are unavailable to Ohio residents. Residential property is exempt up to $20,000.
• Oklahoma: Oklahoma does not allow state residents to claim federal exemptions. The homestead exemption for real property or manufactured homes is unlimited for 160 acres or less outside city limits or 1 acre within city limits.
• Oregon: Only Oregon state bankruptcy exemptions are allowed to state residents. For 1 block of city property or 160 acres outside city limits, the homestead exemption is $30,000, or $39,600 for joint filers; for mobile homes on owner’s property up to $23,000, or $30,000 for joint filers; for mobile homes on rental property $20,000, or $27,000 for joint filers.
• Pennsylvania: Pennsylvania residents are allowed to file either state or federal exemption claims. There is no homestead exemption in the state, but certain categories of personal property are exempt under state law.
• Rhode Island: Debtors may choose to claim either federal or state exemptions in Rhode Island. The Rhode Island homestead exemption equals up to $300,000 for occupied property or property that the owner intends to occupy as their primary residence.
• South Carolina: Only South Carolina state exemptions are available to residents filing for Chapter 7 bankruptcy. Up to $50,000 in exemptions for real property, co-ops, or personal property used as a homestead are allowed to residents.
• South Dakota: State property exemptions are the only options for South Dakota debtors filing for bankruptcy. Homestead exemptions are unlimited for those claiming real property, including mobile homes, if they are 240 square feet or larger and if they have been registered in the state for at least 6 months before filing; however they cannot be larger than 1 acre within city limits or 160 acres outside those limits.
• Tennessee: Tennessee residents are only allowed to choose state property exemptions when filing for bankruptcy. The state homestead exemption is $5,000, or $7,500 for joint filers; exemption may also be claimed by life estates or 2 to 15 year leases; $12,500 exemption for those 62 years old and single; $20,000 for married couples 65 years old or older, or $25,000 if both spouses are over 62.
• Texas: Either federal or state exemptions are available to Texas residents. There is an unlimited homestead exemption for 10 acres or less of real property within city limits or 100 acres outside of it; families are allowed that exemption for up to 200 acres.
• Utah: Only state property exemptions are allowed for Utah residents. The state homestead exemption for real property, mobile homes, or water rights is up to $20,000 if property is the debtor’s primary personal residence; up to $5,000 if property is not the debtor’s primary personal residence.
• Vermont: Vermont residents may choose either federal or state bankruptcy exemptions for Chapter 7 petitions. There is a $75,000 state exemption for real property, including outbuildings, rents, issues, and profits.
• Virginia: Federal property exemptions are for those over 65) plus an additional $500 for each dependent, and a homestead declaration must be filed before bankruptcy petition.
• Washington: Residents of Washington state are allowed to file either federal or state exemptions. The homestead exemption for real property or a mobile home is up to $125,000; however, if the property is unimproved but debtor intends to improve it, the exemption is up to $15,000.
• Washington D.C.: The District of Columbia allows debtors to choose either federal or state property exemptions. The District of Columbia homestead exemption is unlimited for any property that the debtor or their dependents use as a residence, including a co-op.
• West Virginia: Only state exemptions are allowed for those filing for Chapter 7 bankruptcy in the state of West Virginia. Residential property can be claimed as an exemption up to $25,000 in value; and any unused portion of the homestead exemption can be applied to other personal property.
• Wisconsin: State statutes allow residents to claim either federal or state exemptions for Chapter 7 bankruptcies. The state homestead exemption is up to $40,000
• Wyoming: Federal exemptions are not available to Wyoming residents filing for bankruptcy. The homestead exemption for state residents is up to $10,000 for real property, $6,000 for house trailers.