Assets excluded from your debtor’s estate
The following types of property are excluded from debtor’s estates in bankruptcy:
- Any power the debtor (you) may exercise for the benefit of another party.
- Interest of the debtor as a lessee under a nonresidential real property lease that terminated before the commencement of the case or during the case.
- Debtor’s eligibility to participate in programs under the Higher Education Act of 1965 or accreditation status of the debtor as an educational institution.
- Debtor’s interest in hydrocarbons, under certain circumstances.
- Funds placed in an educational retirement account for the debtor’s child or grandchild at least 365 days before filing, within the limits established by the IRS, with a $5,850 limit on funds contributed between one and two years before filing. The account cannot be pledged or used as collateral.
- Contributions to a qualified state tuition program for the debtor’s child or grandchild, as defined by the IRS, not later than one year before filing, with a $5,850 limit on funds contributed between one and two years before filing. Funds cannot be pledged or used as collateral.
- Funds withheld by debtor’s employer for contribution to an ERISA-qualified retirement plan, deferred compensation plan, tax-deferred annuity, or health insurance plan.
- Debtor’s interest in property that was pledged or sold as collateral for a loan or an advance by a licensed lender if the property is in the transferee’s possession and the debtor has no obligation to repay the money or redeem the collateral or property (pawned property).
- Debtor’s proceeds of a sale by money order that is made 14 days before the petition is filed under an agreement that prohibits commingling with property of debtor.
- Property of an IRC §501(3)(c)(1) corporation may be transferred to a non-IRC 503(c)(1) entity under the same conditions as if the debtor were not a debtor.
Asset exemptions choices
Both Federal and State law lists assets that are exempt from the jurisdiction of the bankruptcy court and may be retained by an individual debtor in Chapters 7 and 13 cases.
In Chapter 7, all property must be surrendered to the trustee unless allowed to be retained by a bankruptcy exemption. In Chapter 13, as a condition of plan confirmation, creditors must receive value at least equal to or greater than would be distributed if the case had been liquidated in a Chapter 7 proceeding. Plan confirmation depends on individual bankruptcy exemptions to pass this test.
Using federal or state exemptions depends on the state in which the debtor lived for the two-year period before filing.
Debtors who are husband and wife (joint debtors) may double the exemptions listed. However, joint debtors must choose the same exemptions if they have a choice. For example, in states that allow a choice between federal and state exemptions, one debtor cannot choose the federal exemptions while the other debtor chooses the state exemptions. If the joint debtors cannot agree on the exemption schedule to use, they will be deemed to choose the federal exemption schedule. Additionally, a debtor may not choose some federal exemptions and some state exemptions.
Some retirement funds are exempt regardless of whether state or federal exemptions are elected.
All assets must be included on the debtor’s schedule of assets and indicate their exempt status when appropriate. If an exempt asset erroneously is not listed as such, the asset may be determined to be nonexempt and thereby subject to the trustee’s sale or disposition. If the debtor fails to claim the exemptions within the time specified, a dependent of the debtor may file the exemptions within 30 days thereafter.
Federal exempt assets
Federal law allows exemption for the debtor’s interest in:
$21,625 equity in:
- Real property that the debtor uses as a residence, or
- A burial plot for the debtor or debtor’s dependents, or
- Personal property, or
- A combination of the above.
- Equity in one motor vehicle in the sum of $3,450.
- Household goods, furnishings, clothing, books, animals, crops, musical instruments and appliances, if the value of those individual items does not exceed $600, for the total amount of $11,525.
- Jewelry in the sum of $1,450.
- Any property valued under $1,150, plus up to $10,825 of any unused amount of the real or personal property exemption mentioned in item number 1, above.
- Professional books or tools of trade in the sum of $2,175.
- Any unmatured life insurance contract, other than a credit life insurance contract.
- Loan value of a life insurance contract in the sum of $11,525.
- Professionally prescribed health aids for debtor or debtor’s dependent(s).
- Social security, unemployment or welfare benefits.
- Veterans’ benefits.
- Disability benefits.
- Alimony or child support.
- Payment under some stock bonus, pension profit sharing, or annuity plan or contract.
- Award under a crime victim’s reparation law.
- Payment for the wrongful death of an individual of whom the debtor was a dependent, to the extent necessary for the support of the debtor and the debtor’s dependent(s).
- Payment under a life insurance policy that insured the life of an individual of whom the debtor was a dependent to the extent necessary for the support of the debtor and debtor’s dependent(s).
- Payment for compensation for actual monetary loss up to $21,625 for personal injuries of the debtor or an individual of whom the debtor is a dependent; pain and suffering compensation is not exempt.
- Payment in compensation for loss of future earnings of debtor or an individual of whom the debtor is a dependent to the extent necessary for the support of the debtor and debtor’s dependent(s).
- Retirement funds if those funds are in an account that is tax exempt.
- IRA and SEP accounts up to $1,171,650.
State exempt assets
Every state has its own set of bankruptcy exemptions. Items covered and the values of items vary greatly from state to state. In some states, the debtor has a choice of state or federal exemptions, and in others the debtor must use the state exemptions.
If a husband and wife (or two or more persons) are filing jointly, they must choose the same exemption schedule and may not alternate between state and federal schedules.