The federal bankruptcy laws do allow consumers some rights to keep some of their assets even though they are starting over. The goal of the bankruptcy law is not to punish the debtor and make it impossible to start fresh.
The goal is to address your debt situation so that creditors are treated fairly while balancing the right of the consumer to have some cushion before starting anew, to save some personal assets and to have some means of starting over.
For these balancing reasons, the federal bankruptcy law allows the debtor to exempt certain property from creditors. Even if the creditor has a security interest in the asset, the debtor can still protect some property depending on the amount due on the loans and the debtor’s equity in the property.
Here are the core exemptions offered by federal law. Please note that Connecticut has their own exemptions which may be a better alternative. Generally, you have to choose one or the other set of exemptions (federal or Connecticut). Some states mandate that you have to use the state exemptions.
Connecticut is not one – you can choose the federal exemptions but you can’t mix and match. An experienced Connecticut lawyer will explain the pros and cons of both the state and federal exemptions.
Married couples who both for bankruptcy protection each get their own set of exemptions. This means married couples can double the amount of the exemption in most cases – as long as they both have an interest in the property at issue.
The exemptions are adjusted regularly to account for inflation and other economic factors. The next adjustment should occur in 2016. Adjustments happen only once every three years.
The Homestead Exemption
This is the exemption in your real property. It’s meant to help you keep the equity in your property. It’s only good for your personal residence – where you sleep at night. Personal residence does include mobile homes and condos as well as stand-alone homes. As of 2015, the federal homestead exemption is $22,975.
This means if you have a house worth $150,000 and you owe $75,000 then – using the Connecticut exemption, you would be able to keep your house (provided you continued to make the monthly mortgage payments). If you used the federal exemption, the trustee could sell your house and pay your $22,975 from the proceeds – if you filed a Chapter 7 bankruptcy. If you file a Chapter 13 bankruptcy, then the right of the Trustee to sell you home becomes more complicated. It depends on how you will be handling the arrears and your other debts.
A real estate appraiser is normally used to determine the value of your house.
Exemptions in personal property
The main exemption is $3,675 in your motor vehicle. This means if you have a car worth less than $3,675 you should be able to keep it regardless of most other factors. If your car is worth $10,000 and you owe $7,500 then you also should be able to keep it provided you continue to make the monthly payments on the car
Other personal property exemptions include:
- Jewelry – up to $1,550
- Tools of your trade including books and implements – up to $2,300
- Health aids you need to stay healthy and to function
- Life insurance policies that haven’t matured and up to $12,250 in the loan value of a life policy. Credit life insurance policies are handled differently.
- Household goods, furnishings, appliances like stoves and refrigerators, clothes, books, your pets or animals, musical instruments and crops – up to $12,250 total but no more than $575 for any individual item. Keep in mind, the value is what the item could get if you sold it – not what you’d have to pay to replace it.
Many personal benefits that directly relate to your ability to support yourself
These benefits do not have a dollar limit. For example, you are entitled to keep all your social security benefits.
Money you get for alimony or for child support for your children is exempted. This means creditors can’t go after it and the Trustee can’t force you to use it to pay your debts.
Here are the personal benefits that are exempted:
- Social security payments
- Unemployment benefits and compensation benefits
- Benefits because your are a veteran
- Disability benefits or benefits due to being ill
- Public assistance benefits
Money because you were injured
Before you settle a case through your personal injury lawyer, it may be wise for your personal injury lawyer to speak to your bankruptcy or credit lawyer to maximize the money you can keep. The federal bankruptcy exemptions are:
$22,975 of personal injury benefits. Check with your Connecticut bankruptcy lawyer whether pain and suffering can be exempted or just the lost income and medical bills payment portions.
These injury sums do not have a dollar amount associated with them.
- Future sums needed for support. This income sum is often reduced to a present-day value
- Wrongful death benefits because someone you relied on for funds died due to the wrongful conduct of another
- Crime victim compensation amounts
An overall wildcard exemption
This is an extra exemption on top of the exemptions listed above. You can use $1,225 to help save any property. For example, you can add to your car exemption of $3, 675 to save $4,900 equity in your car.
You are also allowed to use up to $11,500 of the homestead exemption. This means if you don’t have a home, you can use this sum to save your cash, your car, or any other asset. If you have a home, then it depends on how much of the homestead exemption you used to save your home. The federal homestead exemption is $22,975. If you only used $12,975 to save your home, then you can the balance of $10,000 to save some of your other assets.
Exemptions for Retirement Accounts
Many standard retirement accounts are also protected without any dollar limit. There are, however, caps on Standard IRAs and Roth IRAs. The cap is $1,245.475