Exempt Property in a Chapter 13 Bankruptcy

This article explains the difference between non-exempt and exempt assets in a Chapter 13 bankruptcy case. It also explores what happens to your property when you file for Chapter 13. It concludes with a discussion about how debtors create a repayment plan that meets the Bankruptcy Code’s legal requirements.

If you are considering filing for bankruptcy, consider meeting with an experienced bankruptcy attorney before filing your petition. It’s not something you want to make a mistake with.

Your Assets and Your Chapter 13 Repayment Plan

Your property plays a vital role in your Chapter 13 bankruptcy case. For example, the value of a filer’s non-exempt property establishes a framework for your repayment plan.

If you own non-exempt property worth a particular amount, you must pay at least that much to your unsecured creditors in your Chapter 13 plan. For this reason, it’s important for bankruptcy filers to understand the property exemption laws in their jurisdiction, what exemptions they can claim, and how to claim them.

Types of Exempt Property

State and federal laws dictate the exemptions available to a Chapter 13 bankruptcy filer. State laws not only dictate the possible exemptions but also limit the amount of the exemptions.

The following assets are typically exempt in a Chapter 13 bankruptcy case:

• Motor vehicles
• Family homes (sometimes referred to in the law as the”homestead”)
• Personal property items such as clothes and electronics
• Household items and furniture
• Jewelry

The above list is not exhaustive. These exemptions are just the more common types of property that debtors can claim an exemption in their bankruptcy petition. Exemptions come from either federal law or state law, depending on where you file and how long you’ve lived there. Many states have opted out of the federal exemptions, so you must use state exemptions in those jurisdictions. Check your applicable state law and the federal list.

Determining if Your Property is Exempt

When you file a Chapter 7 bankruptcy case or Chapter 13, you’ll include a list of your claimed exemptions. The bankruptcy trustee will review your assets and exemptions and, along with other parties, can raise objections within the deadline. If no timely objection is filed, your exemptions are allowed. If there is an objection, the bankruptcy judge decides the dispute.

Common Chapter 13 Property Exemptions

Earlier in this section, we discussed some of the most common Chapter 13 property exemptions. However, it is worth examining these in more detail. If you’re planning your bankruptcy filing, do so with care so you can effectively protect your assets. These exemptions include:

Homestead Exemption

The homestead exemption protects equity in your primary residence. Depending on your state and residency history, you might have the choice between either federal or state exemptions. Some states provide higher homestead protection and a few are sometimes referred to as”unlimited,”but this typically comes with acreage limits, ownership duration requirements, or federal caps that can apply to recently acquired homes. In states without a general statutory homestead exemption, other protections, like tenancy by the entirety in certain situations, may still protect equity.

Figuring out the best way to apply a homestead exemption can be tricky.  Speaking with a bankruptcy lawyer is a good idea if you think you might be out of your depth.

Personal Property Exemptions

In addition to the homestead exemption, many Chapter 13 filers take advantage of the personal property exemptions.

Some states allow debtors to choose between the federal exemptions and state exemptions, but many do not. Because these laws change and can have conditions, verify your state’s current opt‑out/opt‑in status before filing.

When your bankruptcy attorney files your bankruptcy petition, they must indicate which exemptions you will apply to your case.

If you opt for the federal bankruptcy exemptions, the following limits apply:

• Homestead – $31,575
• Motor Vehicle Exemption – $5,025
• Household Goods – $800 per item/$16,850 total
• Jewelry – $2,125
• Tools of the trade – $3,175
• Personal Injury Claims – $31,575 (no exemption for pain and suffering or financial loss)
• Wildcard Exemption – $1,675 plus up to $15,800 of unused homestead exemption

Once the court determines your exemptions, it will calculate the value of your non-exempt property. This property makes up your Chapter 13 bankruptcy estate. This is the amount you must pay in your Chapter 13 plan.

Miscellaneous Federal Bankruptcy Exemptions

In addition to the types discussed above, other forms of relief are available under the federal exemption system. For example, alimony payments and spousal support are exempt from your Chapter 13 bankruptcy plan.

Some of the miscellaneous Chapter 13 bankruptcy exemptions include:

• Life insurance monthly payments
• Tax-exempt retirement accounts (there is a cap on IRAs)
• Child support
• Unemployment benefits, Social Security benefits, Disability benefits, Public Benefits, etc.
• Some pension payments

These limits are per person. If you file a joint bankruptcy, you may be jointly entitled to a larger exemption than those listed above. Ask your bankruptcy lawyer to confirm these amounts when you first meet.

A Chapter 13 Bankruptcy Attorney Can Help

It’s normal to be unfamiliar with the property exemptions in Chapter 13 bankruptcy if you’ve never filed before. Properly claiming exempt property can help make your proposed Chapter 13 repayment plan more affordable and likely to receive approval from the judge.

If you plan to file for Chapter 13, call a bankruptcy attorney to learn more about the process. Having an expert in the field on your side can help speed up your financial recovery.

Additional Resources:

• Chapter 13 Repayment Plan and Confirmation Hearing
• Bankruptcy vs. Debt Relief
• Exempt vs. Non-Exempt Property Under Chapter 7