When an individual or company files for bankruptcy, their property generally becomes part of the bankruptcy estate. This can include things like money in a bank account, real estate, personal property, insurance benefits, and more. It is important to understand all exemptions available to you before filing so you can prepare accordingly and formulate a plan.
Being able to cite relevant exemption statutes is crucial when you want to stop a creditor from seizing or selling your protected assets in order to satisfy bankruptcy debts. For Chapter 7 bankruptcy the exemptions will help you understand the property you can legally retain after bankruptcy discharge and for Chapter 13 bankruptcy this will shed light on how much you need to pay your unsecured creditors.
However, both federal and state law provide bankruptcy exemptions that protect certain categories of property when someone files for Chapter 7 or Chapter 13 bankruptcy. The debtor can only claim one category of exemptions, the federally created exemptions or state created exemptions. There is never an option to mix and match, which means someone could not use three federal exemptions and four state exemptions. Instead, it is an all-or-nothing choice.
Some states have restrictive laws that opt out of the federal exemptions, which means that debtors can only use the state exemptions. Other states provide the choice between using state or federal exemptions. West Virginia is considered an opt-out state, which means it does not recognize the federal exemptions and debtors will need to use the state-specific ones or none at all.
What are General Federal Bankruptcy Exemptions?
There are several exemptions available to debtors under the federal Bankruptcy Code. Some key ones include the following:
- Homestead exemption: If the debtor owns real property, like a house, $25,150 of the equity can be protected from the bankruptcy estate. Remember that the remaining balance on the mortgage cannot be greater than the home’s value, otherwise the person has no equity. This does not apply to a person who rents their house.
- Personal property: Some key ones are $4,000 for an automobile that you own, $1,700 for jewelry, and professionally prescribed health aids.
- Loss of future earnings
- Wrongful death recovery where you were a dependent
- Unemployment earnings
- Wildcard exemption: This is a catch-all category that essentially allows a person to claim the remainder of another exemption. One example is if you own jewelry valued for $2,000. Since the jewelry category only allows for $1,700, the extra $300 in value can be claimed as part of your wildcard exemptions. Additionally, you can claim an additional wildcard for up to $12,575 if there is no need to use the homestead exemption (i.e. the debtor has no equity in their home or no real estate property ownership at all).
Remember that this is not a full list, and there are more exemptions potentially available for debtors using the federal categories. As noted, West Virginia debtors will not have the choice to utilize these exemptions. Some states that can include Michigan, New York, and Washington. This is not an exhaustive list, so be sure to check your state law before filing to understand if you have a choice to claim the federal bankruptcy exemptions instead of your state created exemptions.
Keep in mind that some exemptions have a dollar amount limit, as illustrated above. These are updated at three year intervals and the next limit update is scheduled for April 1, 2022. For married couples that file jointly on their taxes, these amounts are doubled.
Categories like social security benefits do not have thresholds, which means that the entire amount is protected. There are several other categories like this as well, so make sure to understand which categories have a cap and which allow you to exempt the full amount.
What Property Does West Virginia Protect During Bankruptcy?
West Virginia’s bankruptcy law provides exemptions to protect certain property that debtors can keep out of their bankruptcy estate. Since West Virginia is an opt-out state, these are the only potential exemptions available. Some commonly used bankruptcy exemptions by West Virginia debtors include the following:
- Homestead exemption: This will be for up to $25,000 in real estate equity. This amount will double to $50,000 for married filing jointly debtors, just like federal law and some other states allow in their homestead exemptions.
- Personal property: Up to $2,400 in automobile equity, $1,000 in jewelry, health aids, and $1,500 for trade tools.
- Household goods: Up to $8,000 (not to exceed $400 per item) for books, clothing, animals, appliances, crops, household furnishings, musical instruments, and household goods.
- Money benefits: The full amount can be claimed for child support, alimony, disability benefits, social security benefits, unemployment earnings, veteran’s benefits, wrongful death recovery where you were a dependent, and more.
- Unpaid wages: A debtor can exempt 80% or an amount that equals 30x whatever the federal minimum wage is at that time per week of unpaid wages.
- Wildcard exemption: The debtor can choose property that does not fall into one of the exemption categories valued at $800 ($1,600 for married filing jointly) to be included as a wildcard exemption. If there is property value that exceeds the amount provided in a certain category, then it can also be included here. An example would be an automobile where the debtor has equity totaling $2,600. The extra $200 could go into the wildcard exemption.
Remember that this is not a full list and the threshold amounts can change depending on the year that you are filing for bankruptcy. It is important to review your state’s law before moving forward. West Virginia is not the only state that has a long list of exemptions with varying monetary limits and many states have unique allowances.
As such, no matter where you are filing it is important to fully understand the exemptions available to you and how they fit into the bankruptcy process. Failure to do so can cause you to miss out on exemptions and put property into your estate that otherwise could be exempted and protected from creditors and seizure.
Do I Need a Bankruptcy Lawyer to Help With Exemptions?
Bankruptcy is often a complicated process, so hiring a lawyer is generally advised. Since there are so many potential exemptions available in West Virginia, it is a good idea to consult a West Virginia bankruptcy lawyer about what property you will be able to exempt before you file and begin the process. A lawyer can help you determine the best exemptions to utilize and what will fall into the wildcard category. A lawyer will also know if any money limits have recently changed in West Virginia for certain categories.
Overall, a lawyer will provide an extra lawyer of protection and ensure that your filing is completed correctly and legally. Exemptions are a major part of the process that can save some of your assets, so it is important that you claim them correctly and fully. Remember that incomplete or inaccurate bankruptcy filings can be very detrimental and hold up the process. Some consequences of this include seizure of property that would otherwise be considered exempt, financial losses, delays, and increased court fees. Hiring a bankruptcy lawyer can help you avoid these things and streamline the entire process.