Bankruptcy is a legal process wherein an individual may resolve some of their debts with their creditors. A bankruptcy may provide a debtor with a fresh financial start while permitting their creditors to establish rights on some claims.

A creditor is not permitted to collect on the majority of debts once a bankruptcy is filed. Creditors are required to wait until the bankruptcy proceedings are finalized prior to resuming any collection efforts.

At the outset of the bankruptcy, the court will order an automatic stay for this purpose. Automatic stays are issued because, many times, in a bankruptcy, the individual’s payment terms are often reorganized and re-evaluated during the process.

There are numerous issues an individual should consider prior to filing for bankruptcy. One of the most important considerations is that there are certain debts that cannot be discharged in a bankruptcy.

What are the Different Types of Bankruptcy?

There are different types of bankruptcy available to an individual, depending on what they want to do with their property. The two main options for an individual who is filing for bankruptcy are a  Chapter 7 bankruptcy and a Chapter 13 bankruptcy.

A chapter 7 bankruptcy is also called a liquidation bankruptcy. In this type of bankruptcy, the debtor will be required to liquidate, or sell, most of their property in order to satisfy their debts. Not all property must be liquidated, as there are some bankruptcy exemptions. 

A Chapter 13 bankruptcy is also called a reorganization bankruptcy. In this type of bankruptcy, the debtor will use options other than the sale of their property in order to rearrange their finances so that they can afford their payments.

In Chapter 13 bankruptcy, an individual’s debts are not discharged. Alternatively, the individual keeps their property and agrees to a new payment plan. This type of bankruptcy is often used by individuals that have higher incomes and wish to keep property.

What are Bankruptcy Exemptions?

Bankruptcy exemptions allow an individual to keep certain property and assets after filing for bankruptcy. Bankruptcy exemptions are defined by statutes. Property that is exempt cannot be sold or seized to satisfy the individual’s debts.

An individual who files for bankruptcy may also file for bankruptcy exemptions. Bankruptcy exemptions are available in Chapter 7 and Chapter 13.

There are limits to the exemptions that apply to equity the individual has in their property and the amount of equity that is exempt. Equity means the difference between fair market value of the property and the unpaid balance on the property.

For example, if an individual has a home valued at $250,000 and a loan of $200,000 on that home, the equity value would be $50,000. If the homestead exemption available is $50,000 or greater, the individual would be exempt from selling, or liquidating, the $50,000 of equity in their home to pay their debts.

There are also other factors that may affect exemption limits. For example, if the individual is married, this may double the exemption limit amounts. Additionally, filing as a head of household or having a certain number of dependents can increase certain exemption amounts.

Exemptions that are available for an individual to claim vary by state. In addition, federally-created exemptions are available. Certain states permit the individual to choose between federal and state exemptions, whereas, some states require the individual to use the state exemptions in their state. It is important to note that the individual can only choose the exemptions from one statute.

What are the Bankruptcy Exemptions in Massachusetts?

Massachusetts is one of the few states in the United States that permits residents to choose between the state and federal exemptions. Individuals who file for bankruptcy in Massachusetts may choose between the exemption system discussed below or the federal exemption system, but they must choose one.

In other words, the individual may not pick certain items from the two systems. For example, if the individual uses the federal homestead exemption, they must also use the federal exemptions for personal property.

The Massachusetts bankruptcy exemptions include:

  • Homestead:
    • Up to $500,000 in the principal residence if the debtor filed a Declaration of Homestead with the Registry of Deeds;
    • Up to $125,000 if no Declaration of Homestead was filed with the Registry of Deeds;
    • Up to $1,000,000 if the homeowner of the principal residence is disabled or over the age of 62, regardless of the Declaration requirement;
    • Up to $2,500 in rent per month if the individual rents the dwelling as their principal residence;
    • Burial plots and tombs are exempted;
  • Equity in an automobile:
    • Up to $7,500 in one motor vehicle used for personal transportation or employment;
    • Up to $15,000 in one motor vehicle if the vehicle is owned or substantially owned by a handicapped person or an elderly person.:
  • Household furniture:
    • Up to $15,000 in necessary household furniture;
  • Personal property:
    • All necessary clothing and beds for the debtor and their family;
    • One pew occupied by the individual or their family in a house of worship;
    • Two cows; 
    • Two pigs; 
    • Twelve sheep; 
    • Four tons of hay;
    • Military uniforms;
    • One heating unit;
    • One computer; 
    • One television;
    • Up to $2,500 in bank deposits;
    • Up to $1,225 in jewelry;
    • Up to $600 in food;
    • Up to $500 in Bibles and books;
    • Up to $500 per month for utilities;
    • Up to $300 in one sewing machine in actual use;
  • Tools of the trade:
    • Up to $5,000 in tools, implements, and fixtures;
    • Up to $5,000 in stock-in-trade;
    • Up to $1,500 in fishing equipment if that equipment is used for a business;
  • Insurance:
    • Fraternal benefit society benefits;
    • Life insurance policies to a dependent;
    • Up to $400 per week of disability insurance benefits;
  • Pensions:
    • ERISA qualified benefits needed for support;
    • State pensions;
    • Public retirement benefits;
    • IRAs required for support;
    • Public benefits;
    • Unemployment benefits;
    • Workers compensation;
    • Public assistance;
    • Social security;
    • Veteran’s benefits;
    • Moving benefits for exercise of eminent domain;
  • Alimony and child support:
    • An amount reasonably necessary for the support of the individual and their dependents;
  • Wildcard:
    • Up to $1,000 in addition to up to $5,000 in total value of any unused amount in the automobile, household furniture, and tools of the trade exemptions. This amount can only be used on personal property.

How does the Wildcard Exemption Work?

The wildcard exemption may be used by an individual to save any property, including property that is not covered by other exemptions. The caveat is the individual may only save up to $1,000 plus the unused value of the automobile, household furniture, and tools of the trade exemptions. The unused value of these exemptions added together cannot exceed $5,000.

If an individual wants to save their second car from bankruptcy and if that car is worth $5,000, it may be saved from the bankruptcy using the wildcard exemption. It is important to note that even if the individual uses all $27,500 in exemptions available to save property, they still get $1,000 in the wildcard exemption to protect additional property.

Do I Need a Bankruptcy Lawyer?

Yes, it is essential to have the assistance of an experienced Massachusetts bankruptcy lawyer for any bankruptcy issues you may face in Massachusetts. Bankruptcy is a complex process with many issues to consider. An attorney can review your case and your property, determine which exemption statute may best serve your needs, and represent you during any court proceedings.