Federal Bankruptcy Exemptions
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Insurance Lawyer
Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...
Jeffrey Johnson
Insurance Lawyer
Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...
Jeffrey Johnson
Updated July 2023
These exemptions are found in 11 U.S.C. §522 and can be used by anyone who is qualified to file bankruptcy in a state that allows its residents to use the federal exemptions, or by anyone who doesn’t qualify under residency requirements to use state exemptions. You have to live in a state for at least 91 days before you can file for bankruptcy there. The states that allow you to use the federal exemptions are: Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin.
Though federal law allows states to opt out of most federal exemptions, a few apply in all jurisdictions. The most important are the pensions exemptions listed below. Every state’s exemptions automatically include these.
The dollar amount allowed under each exemption is updated for inflation every 3 years with the next increase due in April 1, 2022.
| Federal Exemptions | ||
|---|---|---|
| Asset | Exemption | Subsection of 11 USC § 522 |
| Homestead | Real property, mobile home, co-op, or burial plot: up to $25,150. Up to $12,575 of this amount may be used as a wildcard and applied to any kind of property. | (d)(1); (d)(5) |
| Insurance | Life insurance contract (not matured): all except credit insurance policies. | (d)(7) |
| Life insurance policy loan value and accrued dividends: up to $13,400. | (d)(8) | |
| Unemployment, disability, and illness benefits: all. | (d)(10)(C) | |
| Life insurance payments from a policy taken out on someone the debtor depended on: all necessary for support. | (d)(11)C) | |
| Miscellaneous | Child support and alimony: all necessary for support. | (d)(10)(D) |
| Pensions | Tax exempt retirement accounts (which include 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined-benefit plans): all. | (b)(3)(C) |
| IRAs and Roth IRAs: up to $1,363,800 per person. | (b)(3)(C) | |
| Personal Property | Motor vehicle: up to $4,000. | (d)(2) |
| Household goods, appliances, furnishings, clothing, books, musical instruments, animals, crops: up to $625 per item and up to $13,400 total. | (d)(3) | |
| Jewelry: up to $1,700. | (d)(4) | |
| Health aids: all. | (d)(9) | |
| Recovery for the wrongful death of a person on whom the debtor depended: all. | (d)(11)(8) | |
| Recoveries for personal injury (excluding amounts for pain and suffering and pecuniary loss): up to $25,150. | (d)(11)(D) | |
| Payments for lost earnings: all. | (d)(11)(E) | |
| Public Benefits | Public assistance benefits: all. | (d)(10)(A) |
| Social Security benefits: all. | (d)(10)(A) | |
| Unemployment compensation benefits: all. | (d)(10)(A) | |
| Veterans’ benefits: all. | (d)(10)(A) | |
| Crime victim compensation: all. | (d)(11)(A) | |
| Tools of Your Trade | Implements, tools, and books: up to $2,525. | (d)(6) |
| Wages | No exemption. | |
| Wildcards | Any property: up to $1,325. | (d)(5) |
| Any property: up to $12,575 of the unused homestead exemption. | (d)(5) | |
Click here to read an Introduction to Bankruptcy Exemptions.
Case Studies: Insurance Considerations in Federal Bankruptcy Exemptions
Case Study 1: Homeowner’s Insurance and Homestead Exemptions
When utilizing federal bankruptcy exemptions, individuals may be able to protect their primary residence through homestead exemptions. Homestead exemptions allow debtors to exempt a certain amount of equity in their home from the bankruptcy process. In this case, homeowners’ insurance becomes essential.
Homeowner’s insurance provides coverage for damage or loss to the property and its contents. By maintaining adequate homeowner’s insurance, individuals can protect their home from risks such as fire, theft, or natural disasters.
Having insurance coverage in place can ensure that the equity in the home, protected under the homestead exemption, remains safeguarded.
Case Study 2: Retirement Accounts and Life Insurance
Federal bankruptcy exemptions often include provisions for retirement accounts, such as 401(k)s or IRAs, which are designed to help individuals save for retirement. These retirement accounts are typically protected from creditors during bankruptcy proceedings. However, it is important to note that the exempted amount may have limits.
To enhance the protection of retirement savings, individuals can consider having life insurance policies with appropriate beneficiaries. Life insurance provides a death benefit to designated beneficiaries upon the insured’s passing.
By naming beneficiaries, the proceeds from the life insurance policy can be shielded from creditors and remain accessible to support the financial well-being of loved ones.
Case Study 3: Personal Property and Personal Property Insurance
Federal bankruptcy exemptions may include provisions for personal property, such as household goods, clothing, and other essential items. Personal property insurance can be valuable in protecting the value of these assets. Personal property insurance provides coverage for the loss, theft, or damage to personal belongings.
By maintaining personal property insurance, individuals can mitigate the financial risks associated with potential losses and ensure that their exempted personal property remains protected during the bankruptcy process.
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