2022 Update to Federal Bankruptcy Code Property Exemptions
People who file a bankruptcy case in Minnesota have the option of choosing the exemptions specifically provided by the Federal Bankruptcy Code (commonly referred to as the “Federal exemptions”), or any other applicable Minnesota State or Federal laws (aka “State exemptions”), to protect their property from creditors.
Choosing the correct type of exemptions is extremely important to ensuring a person filing for a chapter 7 bankruptcy is able to protect as much property as they can from being taking to pay their debts, and to ensure that a person filing for chapter 13 bankruptcy does not pay more than they have to during their repayment plan. The amount of property that the State and Federal exemptions are able to “exempt,” or protect, is periodically updated. The Federal exemptions were updated in 2022 to allow debtors to protect more property than previously allowed before under the Bankruptcy Code. While the types of property that can be exempted by the Federal exemptions is the same, the dollar amount of the property that the exemptions allow the debtor to protect has increased.
As of April 1st, 2022 the Federal exemptions provided by the Bankruptcy Code were updated and legally took effect. Now, a debtor can exempt $27,900 in equity in their “homestead.” The debtor’s homestead consists of the real estate which they own and upon which they use as their primary residence. Equity refers to the value of the property in excess of any debts that exist as a lien against the property (i.e. a home mortgage). The 2022 change now also allows debtors to exempt up to $4,450 in equity in one motor vehicle. Debtors can now exempt $14,875 in their household goods, appliances, and furniture. The change also allows the debtor to exempt up to $1,875 in jewelry.
The Federal exemptions also allow for a “wild card” exemption which they can use to exempt property that is not specifically exempted by another exemption. The wild card exemption is, at least, $1,475. In addition to this amount, the debtor may add any unused portion of the $27,900 homestead exemption to this wild card amount. Therefore, if a debtor uses the homestead exemption to exempt, and protect, $25,900 of their home value, the remaining unused $2,000 could be added to the $1,475 amount to give the debtor a total wild card of $3,475 to exempt other property.
Additionally, under the new 2022 Federal exemptions, the debtor may exempt up to $2,800 in property that serves as “tools of the trade.” This is property that the debtor needs to carry out their business or profession. Whole life insurance policies are those that have a cash out value that the debtor can opt to take out whenever they want. Under the new Federal exemptions, debtors can exempt this cash out amount up to $14,875. Another notable change is that up to $27,900 recovered from a debtor’s personal injury suit may be exempted. There are a number of other types of property that are exempt up to an essentially unlimited value such as social security benefits, worker’s compensation benefits, IRAs, 401ks, and etc.
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Determining which type of exemptions to use to protect one’s property in a bankruptcy can be complicated and it is always best to consult with an experienced bankruptcy attorney before filing for bankruptcy to get the best advice on which exemptions to elect. See us at Lifebacklaw.com!
