Bankruptcy Exemptions
The bankruptcy code designates certain property as exempt from being turned over and liquidated. If the property is exempt, you get to keep it. Exempting assets is one of the most important considerations before filing for bankruptcy.
Massachusetts residents may claim either a federal or state scheme of exemptions, but not both. The Massachusetts scheme allows you to exempt up to $500,000 of your residence, and, usually, all your IRA’s, 401(k)’s and qualified retirement assets, but is more limited when it comes to household goods, tools, furniture, jewelry, etc. The federal scheme, on the other hand, is more generous in exempting most household goods, furniture, clothing, and jewelry, but is not as generous as to homestead. We will help you chose the best exemption scheme to protect most or all of your property.
Here is a general comparison of the two systems of exemptions:
| Massachusetts | Federal | |
|---|---|---|
| Homestead (equity in primary residence) | $125,000 automatic; up to 500,000 | $23,675 |
| Motor Vehicle | $7,500 ($ 15,000 if elderly or disabled) | 3,775 |
| Household furniture, appliances, etc. | 15,000 | 12,625 |
| Jewelry | 1,225 | 1,600 |
| Wildcard I – any single item | 1,000 | 1,250 |
| Unused Homestead to apply to other property | 5,000 | 11,850 |
| Tools of Trade | 5,000 | 2,375 |
| Cash or savings in bank: | 2,500 + 2,500 | None listed (may apply unused homestead or wildcard |
| Life Ins., cash value, loan value | 100% exempt in certain cirumstances | 12,625 |
| IRA, 401(k)'s | 100% (but no more than 7% of earnings in any one year) | 1,283,025 |
| Personal Injury Recoveries | Not specifically exempt, may use wild card, etc. | 23,675 |
| Materials and stock in trade: | 5,000 | |
| Boats and fishing equipment | 1,500 |
Couples filing a joint petition may generally double their exemptions, although they must use the same scheme (state or federal) and may not mix and match between the two schemes.
For assets with secured debts, such as a house or car, a debtor need only exempt the equity in the asset, not the entire fair market value of the asset.
When valuing an asset, the debtor and attorney should use a “liquidation” value, which is less than the fair market value.
If a debtor is not able to exempt an asset, it may have to be surrendered to the Bankruptcy Trustee, but sometimes there are other options. For example, the property may be “purchased” back from the trustee; and sometimes secured property may be “redeemed” by paying the fair market value to the secured creditor (which may often be much less than the loan balance). Because of the complexity of this issue, it is important to consult an experienced bankruptcy attorney.
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