What is a Bankruptcy Exemption?
Bankruptcy exemptions protect certain assets in a bankruptcy filing from the reach of the trustee or creditors. These are assets that the debtor is permitted to keep after the bankruptcy. Some bankruptcy exemptions protect the full value of an asset while other exemptions protect a specific amount of equity in a particular asset that is exempt. Exemptions are available regardless of the chapter of bankruptcy being filed, including Chapter 7, Chapter 13, and Chapter 11.
Federal Bankruptcy Exemptions vs. State Bankruptcy Exemptions
Each state has its own set of state bankruptcy exemptions. Exemptions vary significantly from state to state. Although there are rules about where an individual is permitted to file, in some cases involving location or potential relocation, strategic planning can maximize the exemptions available to a debtor.
In addition to state level exemptions, Congress has enacted federal exemptions. Many states allow debtors in bankruptcy to choose between federal bankruptcy exemptions and state bankruptcy exemptions, including New Jersey and New York. The choice between federal and state exemptions can be important. The idea, of course, is to maximize the debtor’s exempt assets by strategically evaluating whether it is more advantageous to use the applicable state of federal exemptions. The more exempt property means the more property that the debtor is able to retain after the bankruptcy. It is important to note that a debtor cannot “mix and match”. The debtor must choose to use all state exemptions or all federal exemptions. Your bankruptcy attorney will evaluate your situation to determine which set of bankruptcy exemptions provide the greatest protection of assets in bankruptcy.
Federal bankruptcy exemptions are adjusted every three years on April 1. The next scheduled change for federal bankruptcy exemptions is on April 1, 2022. As of April 1, 2019, some of the common federal bankruptcy exemptions used by debtors include:
Many items are protected up to their full value, including qualified pension plans, most tax-exempt retirement accounts, public assistance, Social Security, unemployment compensation, Veteran’s benefits, and domestic support.
What are the Bankruptcy Exemptions for New Jersey?
New Jersey allows bankruptcy debtors to choose between federal bankruptcy exemptions and state bankruptcy exemptions. The amount allowed for New Jersey state exemptions may also change. The amounts below are current as of August 2019. In contrast to the federal exemptions, NJ bankruptcy exemptions allow:
Most individuals who file bankruptcy in New Jersey opt to use federal bankruptcy exemptions because the federal exemptions provide more protection of assets in bankruptcy. If you are contemplating filing in New Jersey, you should consult a New Jersey bankruptcy attorney for more specific information on what property may be exempt in your case.
What are the Bankruptcy Exemptions for New York?
New York also allows debtors to choose between federal and state bankruptcy exemptions. The amount allowed for New York state exemptions may also change from time to time. The amounts below are current as of August 2019. In contrast to the federal exemptions, NY bankruptcy exemptions allow:
New York has more generous state bankruptcy exemptions compared to New Jersey. However, a New York bankruptcy attorney should still review your case to determine whether state or federal bankruptcy exemptions are the best choice given your financial situation.
Learn More About Bankruptcy Exemptions from an Experienced Bankruptcy Lawyer
Choosing between federal and state bankruptcy exemptions can have a significant impact on your bankruptcy case. You need to choose the exemptions that provide the highest level of protection from creditors and maximize what you are able to keep post-bankruptcy. In most cases, a Chapter 7 debtor does not lose any property because the net equity in the debtor’s property falls below the exemption amounts or the trustee determines that its value is so inconsequential that it is not worth the trouble of selling it.
If a debtor has property that is not exempt, filing a Chapter 13 case may be an option. In Chapter 13, you can protect non-exempt assets if you perform under a court approved payment plan. The bankruptcy repayment plan allows you to restructure debts and make payments over time. In many cases, debtors only pay a small percentage of their unsecured debt (credit cards, medical bills, etc.) through a Chapter 13 plan (but that, of course, will depend on the specific values of your assets, your income and the amount of your debts).