Bankruptcy Alphabet-E is for Exemptions

The thought of liquidating your assets in a Chapter 7 Bankruptcy sounds very scary. Do I lose my house? Where do I live? Do I lose my car? How do I get to work? What about my retirement? And more importantly, what about my clothes?!

Luckily, the federal government, or in some cases your state legislature, has decided that those who file for bankruptcy protection, need some property in order to continue being productive members of society. That’s where bankruptcy exemptions come into play.

E is for Exemptions.

Photo by Poppy Thomas-Hill

Bankruptcy exemptions allow a debtor to keep certain property that the government believes is necessary to gain a fresh start. There are two sets of exemptions:

1) those provided by Congress, known as the federal exemptions;

or

2) those provided by the State legislature that you reside in, if they have opted out of the federal exemptions.

Since Nebraska, the jurisdiction that I practice, has opted out of the federal exemptions, I have supplied the basic list of those that normally apply to most cases:

  • Homestead Exemption: Allows the protection of up to $60,000 in equity in a residence for a head of household or unmarried over 65 years of age. Neb. Rev. Stat. §40-101
  • Tools of the Trade: Allows the protection of up to $2,400.00 in tools or supplies used for work, including a vehicle used to commute to work. Can be doubled on a joint petition for a spouse who also works. Neb. Rev. Stat. §25-1556
  • Immediate Personal Possessions: Allows for the full protection of personal property which has extreme personal value. Although not defined, I have viewed this exemption to protect wedding rings and family pets. Neb. Rev. Stat. §25-1556
  • Furniture/Household Goods: Allow for the protection of up to $1,500 in value of furniture and household goods. Can be doubled for a joint petition. Neb. Rev. Stat. §25-1556
  • Personal Injury Settlements: Allows for the protection of lump-sum or structured payments, including interest, from an award from a personal injury. Neb. Rev. Stat. §25-1563.02 The protection also applies to Worker’s Compensation awards. Neb. Rev. Stat. §48-149
  • Life Insurance: Allows the protection of up to $10,000 cash value from life insurance policies or up to $100,000 in life insurance benefits. Neb. Rev. Stat. §44-371. There are some qualification requirements. Speak to your Nebraska Bankruptcy Attorney for more information.
  • Retirement/Pension: Allows the protection of retirement or pension programs that are reasonably necessary to for the support of debtor and their dependents and if they are qualified programs under the Internal Revenue Code. Neb. Rev. Stat. §25-1563.01
  • Tax Refund: Allows for the protection of the portion of state and federal tax refunds that are refunded due to the earned income tax credit for low income workers. Neb. Rev. Stat. §25-1553
  • Wild Card: Allows for the protection of any personal property up to a value of $2,500. Can be doubled in joint petition cases. Neb. Rev. Stat. §25-1552

The Bankruptcy Exemptions are a powerful tool for the Debtor to use to maximize the protection of property from liquidation through the bankruptcy process.

Other Bankruptcy Attorneys talking about the Letter E are the following:

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