A debtor may maintain some assets or property even after filing for bankruptcy, thanks to an exemption. Exempt property cannot be confiscated or sold to pay the debts of the individual filing for bankruptcy, and the exemptions are outlined in the statute.
In both Chapter 7 and Chapter 13 bankruptcy exemptions are crucial:
- Chapter 7: Exemptions in Chapter 7 bankruptcy assist in determining which property you are allowed to keep after receiving a bankruptcy discharge. This is how bankruptcy exemptions assist in defending your possessions during bankruptcy.
- Chapter 13: Exemptions in Chapter 13 bankruptcy help determine how much you will have to pay to your unsecured creditors, which might mean the difference between your plan being approved and being rejected.
Who May File an Exemption in Bankruptcy?
Anyone who declares bankruptcy is eligible to request bankruptcy exemptions. Both Chapter 7 and Chapter 13 bankruptcy files are eligible for these exemptions, although the specific exemptions that may be requested differ from state to state.
Make an inventory of your possessions and note their replacement values to calculate what property you will be allowed to keep if you file for Chapter 7 bankruptcy. The value should next be compared to the exemption for that kind of property in your state. If your state offers many systems, compare them to see which ones permit you to keep the items important to you.
Kansas decided not to participate in the federal bankruptcy exemption program. As a result, persons declaring bankruptcy must use the exemptions allowed by state law. Below is a list of many Kansas exclusions. For married couples, the numbers may be higher:
- Homestead (ownership in a building used as a habitation): The full value of a homestead is exempt, up to one acre in a city and 160 acres of farmland.
- Equity in a car: Up to $20,000 in a car used for commuting – The full worth of any car with special disability accommodations
- Personal property: Up to one year’s worth of supplies for fuel, food, clothing, and furnishings
- Jewelry worth up to $1,000: A burial place and pre-paid funeral services
- Tools of the Trade: Professional literature, furnishings, tools/equipment, and supplies worth up to $7,500
- Earned income tax credit for wages and cash: 75% of disposable income (limited to 30 times minimum wage)
- Insurance: Death benefit payments (if they cannot be used to pay creditors)
- Disability/illness insurance benefits: The cash value of a life insurance policy
- Benefits from fraternal life insurance
- Employee retirement benefits, including IRAs
- Federal government pensions required for support
- Pensions of public servants, judges, and elected officials
- Pensions of police officers, firefighters, and members of the Kansas Highway Patrol
- Pensions and other types of payments for illness, death, disability, age, or length of service
- Public aid
- Workers’ compensation
- Crime victims’ compensation
- Social Security
- Benefits for veterans
- Family college savings schemes
- Alimony and child support
- Assets of a partnership in commerce
Which System of Exemption May I Use?
The state’s laws in which you reside determine the answer to this query. Most states forbid their citizens from using the federal law exemption mechanism. You must use your own state’s exemption system if you reside in a state that forbids the use of federal law exemptions.
However, several states allow their citizens to use state or federal-level exemption systems.
What Is an Exemption Limit for Bankruptcy?
Any equity in a piece of property is subject to an exemption limit, which restricts how much equity is exempt. Equity is the difference between a property’s fair market value and any outstanding debt. A home with a loan of $450,000 and a valuation of $500,000 has equity worth $50,000. The debtor would not be required to sell the $50,000 worth of equity in the home to settle the obligations if the state’s homestead exemption was $50,000 or more.
Depending on where you live, other things could have an impact on what your limit is. In some areas, marriage may allow couples to increase their exemption amounts. Some exemption amounts may also increase if you file as the “head of household” or if you have several dependents.
Senior citizens may be eligible for higher homestead, personal property, or other exemption limits in some states. Your exemption threshold may be increased by a disability, particularly for motor vehicles.
Do All Courts Apply the Federal Bankruptcy Exemptions?
No. Only federal bankruptcy exemptions are used in some states. Other states rely on their own state exemptions rather than the federal bankruptcy exemptions. A third group of states allows debtors to select between federal and state exemptions.
The Bankruptcy Code’s bankruptcy exemptions are special since they are the only provision that enables state regulation of bankruptcy proceedings. Congress creates other bankruptcy legislation.
What’s the Process for the Wildcard Exemption?
The debtor may invoke the wildcard exemption to protect any property, including those items not covered by the other exemptions. The caveat is that the debtor is only allowed to save up to $1,150 in addition to the unused homestead exemption amount. However, the homestead exemption’s maximum unused value is $10,825.
Let’s say a debtor wishes to avoid bankruptcy to keep his second car. The automobile is $5,000 in value. The debtor would have $4,625 left over if they just used $17,000 to save their home. The remaining homestead exemption is insufficient to cover the $5,000 automobile. The debtor may keep the car and still have $775 left over to save other property, such as their gun collection, if we add $4,625 to the $1,150 allowed by the government exemptions.
Even if the debtor uses the entire $21,625 to keep their house, they can still use the $1,150 handed to them. To put it another way, all debtors have the legal right to safeguard up to $1,150 in property that isn’t already covered by other exemptions under the federal bankruptcy exemption system.
Are the Exemptions the Same in All States?
No. According to federal bankruptcy law, each state is free to choose which assets a debtor is permitted to keep when a bankruptcy case is filed.
A state may permit a debtor to select between exemptions created by the federal government, as described in 11 U.S.C. 522, and exemptions created by the state, or it may restrict a debtor to exclusively state-made exemptions. A debtor is only permitted to use one statute’s exemptions—either the federal or the state law—and not both. The debtor is only permitted to take advantage of the exemptions from one statute in states that offer more than one exemption statute or system.
Do I Require a Bankruptcy Attorney?
Bankruptcy is a very complicated process, and filing an exemption incorrectly can lead to that property being seized, even if the property would have been exempt had the exemption been filed correctly. A bankruptcy lawyer knows the ins and outs of filing for bankruptcy and can recommend what chapter of bankruptcy is right for you, ensuring that your exemptions are filed correctly.
A Kansas bankruptcy attorney can assist with state law and assist you in keeping part of your property and other assets if you are considering filing for bankruptcy but have doubts about how to proceed with the procedure.