Most individuals are unaware that two types of exemptions can be used if you file bankruptcy. When Congress passed bankruptcy laws, they allowed states to decide if they wanted to enable their residents to use the federal bankruptcy exemptions or state-specific exemptions to keep their property. Indiana is one of the states that only permit filers to use the Indiana bankruptcy exemptions.
So, when you fill out your bankruptcy forms, you will need to make sure that you are using the Indiana exemptions, not federal exemptions. One exception to this regulation is using federal nonbankruptcy exemptions to cover specific retirement accounts and disability benefits. Recall that choosing the proper exemption is necessary for your case to operate smoothly.
Most individuals who file bankruptcy do so to get a “fresh start” and lasting debt relief. The concept behind filing bankruptcy is that once your debts are eradicated, you will be in a place to start your life over. If you filed for bankruptcy and lost all of your belongings, it would be tough to start over.
The only way to start over would be to have your debts eradicated and be left with enough property to sustain yourself and your dependents. Congress comprehends that if individuals were left penniless, they would be in a far worse situation. So, when you file for bankruptcy, you get to keep some of your property.
Indiana has opted out of the federal exemption system, so only state bankruptcy exemptions can be used. Many of the Indiana exemptions are listed below. The figures listed may be higher for married couples:
- Homestead (equity in a dwelling used as a residence)
- Up to $17,600
- Personal property
- $350 of intangible personal property
- Health aids
- Wages and cash
- 75% of wages; may be higher for low-income people
- Earned income tax credit
- Fraternal benefit society benefits
- Life insurance policies with a beneficiary spouse, children, or creditor
- Group insurance
- Pensions and retirement
- Pensions for public employees, teachers, police/sheriffs, firefighters
- Retirement plans
- Public benefits
- Workers compensation
- Crime victims’ compensation
- Public assistance
- Social security
- Veteran’s benefits
- Alimony and child support
- Amount reasonably necessary for the support of debtor and dependents
- Education savings plan
- Medical savings account
- Debtor’s interest in a credit or refund
- Up to $9,350 in personal property
How Does the Wildcard Exemption Work?
The debtor can use the wildcard exemption to save any property, including property not covered by the other exemptions. The catch is that the debtor can only save up to $9,350.
When You Can Use Indiana’s Bankruptcy Exemptions
You can file for bankruptcy in Indiana after living there for over 180 days (or the greater portion of 180 days before filing). But before using Indiana’s exemptions, you need to live in Indiana for 730 days before filing for bankruptcy. Otherwise, you’d use the previous state’s exemptions.
For instance, imagine you weren’t living in any one state during the two years before filing for bankruptcy. In that circumstance, you’d use the state’s exemptions you lived in for most of the 180 days before the two-year period that immediately preceded your filing. (11 U.S.C. § 522(b)(3)(A).)
Common Indiana Bankruptcy Exemptions
Although the federal bankruptcy exemptions aren’t available in Indiana, keep in mind that partners who share an ownership interest in the property can double the corresponding exemption.
Also, all filers are permitted to:
- Use the federal nonbankruptcy exemption list
- Protect stimulus payments, tax credits, and child credits using the federal COVID-19 recovery rebate exemption, and
- Keep 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 and traditional and Roth IRAs to $1,512,350 per individual
Indiana Homestead Exemption
You can protect up to $19,300 of real estate or tangible personal property equity. Indiana’s homestead exemption applies to residential property or tangible personal property (such as a mobile home) that includes your private or family residence. As a result, a homestead in Indiana can consist of a home, condominium, camper, or ranch.
Spouses who file bankruptcy jointly and co-own a house can double the exemption amount. Furthermore, any interest that the debtor has in real estate held as a tenant by the entirety might be exempt if only one spouse files for bankruptcy.
Indiana Motor Vehicle Exemption
Indiana does not have a straightforward motor vehicle exemption, but you can use Indiana’s wildcard exemption to defend the equity in your car, truck, van, or another vehicle.
Indiana Wildcard Exemption
You can protect any nonresidential real estate or tangible property of your choosing up to a value of $10,250. You can also protect up to $400 of intangible personal property.
Pension and Retirement Benefits
The following pensions and retirement benefits are exempt from bankruptcy:
- Pension, retirement, or IRA account
- Police pension fund
- Firefighter pension fund
- Legislators’ benefit plan
- Public employee retirement
- Indiana State Teachers’ Retirement fund benefits
You can exempt the following personal property:
- Uniforms, arms, military equipment
- Health aids
- Medical care savings account
- Health savings account
- Qualified tuition program
- Education savings account
- Interest in a refund or earned income credit for exempt bankruptcy property
- A spendthrift trust
- Insurance Benefits
- Fraternal benefit society benefits
- Life insurance policies that name the insured spouse, children, dependent relatives, or any creditor as a beneficiary and the proceeds of such policies are exempt from claims against the insured and the insured’s spouse; life insurance, mutual life, and accident insurance proceeds, including group policies
Miscellaneous Indiana Exemptions
- Unemployment compensation benefits
- Workers’ compensation except for child support claims
- Specific partnership property
- Lesser of 75% of earned but unpaid wages or 30 times the Federal minimum wage
Confirming the Indiana Bankruptcy Exemptions
Avoiding Exemption Issues in Indiana
If you don’t exempt your property carefully, you could lose the property in bankruptcy.
Do I Automatically Get to Keep Exempt Property?
Typically, no. You’ll choose the exemption set that best defends your property. List the exempt assets and applicable exemption laws on Schedule C: The Property You Claim as Exempt and file it with your other needed paperwork.
Will Someone Review My Exemptions?
The bankruptcy trustee—the court-appointed official, tasked with managing your case—will check Schedule C to ensure that you have the privilege to defend the claimed property. A trustee who clashes with your exemptions will file an objection with the court. The judge will determine whether you can keep the property.
What If I Make a Mistake?
Most trustees won’t file an objection unless it’s obvious that the debtor is trying to pull something over on the court. If there’s a minor exemption issue, the trustee will likely call you to work out the issue informally.
It’s worth noting that it’s not a good idea to finesse exemptions. Not only do you have a responsibility to provide accurate info on your bankruptcy forms, but deliberately making false statements could be deemed fraudulent. Bankruptcy fraud is punishable by up to $250,000, 20 years in prison, or both.
Do I Need a Bankruptcy Lawyer?
If you are filing for bankruptcy in Indiana, it is important to make sure that it is filed accurately and compliant with state laws. An Indiana bankruptcy lawyer can help you make sure that you claim all of the applicable exemptions and help you defend your property by avoiding filing mistakes.