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Exemptions & How They Can Protect Your Assets

What Are Bankruptcy Exemptions?

Filing for bankruptcy can eliminate or reduce your debt, but it is not without certain consequences. Depending on the type of bankruptcy you file, you may be at risk of losing some of your assets. State and federal bankruptcy exemption laws determine which of your assets you will be able to keep if you file for Chapter 7. The same laws are applied to Chapter 13 cases in order to determine how much a debtor must pay his or her various creditors.

When you file for Chapter 7, your assets—your house, your car, your personal property, etc.—becomes part of the “bankruptcy estate.” The bankruptcy trustee then sells non-exempt property from the bankruptcy estate and uses the profits to pay your debts. Exemption laws distinguish between exempt and non-exempt assets; if a particular property is exempt under either state or federal law, the bankruptcy trustee cannot sell that property to pay back debts.

In Arkansas, people who file for bankruptcy are allowed to choose either the Arkansas state exemption list or the federal exemption list. Debtors may not choose certain items from one list and other items from the other list. If you are considering filing for Chapter 7 bankruptcy and have questions about which list you should choose from, please contact the Batesville bankruptcy attorney at Burgess Law Firm for a free consultation.

How Exemptions Work

Exemption laws factor the equity of a certain property—that is, its current total value minus the current amount owed on the property—and compare it to the state or federal exemption amount. If the equity is less than or equal to the exemption amount, the property is considered exempt and you will get to keep it. For example, if you own a car that is valued at $10,000 and you owe $8,000, the car has an equity of $2,000. If the exemption amount for the vehicle is $2,000 or less, you will get to keep your car.

Federal exemption amounts are updated periodically (every three years, in April). The most recent adjustment occurred in 2016. Additionally, if you are married and both you and your spouse are filing for bankruptcy, you are both allowed to take the full exemption amount. This, in effect, doubles the exemption amounts for married couples.

Arkansas Bankruptcy Exemptions

Arkansas bankruptcy exemptions are as follows:

  • Homestead: Arkansas state exemptions allow you to choose between one of two options. Option A allows unlimited equity for rural properties that are 80 acres or urban properties that are ¼ of an acre and, in either instance, the property is real or personal and used as a primary residence. If the land is worth less than $2,500, acreage may be increased up to 160 acres for rural properties and 1 acre for urban properties. Option B, on the other hand, allows an exemption of $800 if single and $2,500 if married for real or personal properties used as a primary residence. You may choose either option A or B, but not both.
  • Personal Property: The personal property exemption allows up to $200 for single people who are not the head of the household or up to $500 for married people for all personal property. This includes all personal property (such as vehicles, household items, etc.) besides clothing. By law, you are allowed to keep all of your clothes under the personal property exemption.
  • Retirement/Pension: Contributions up to $20,000 that were made to an IRA at least one year prior to filing for bankruptcy are exempt. This exemption is subject to the Arkansas personal property exemption of $200 (single) or $500 (married). It may be possible to exempt tax-exempt retirement accounts and/or IRAs and Roth IRAs of $1,283,025 or less under federal law.
  • Other Exemptions: Certain public benefits are exempt. These include workers’ compensation, unemployment, and compensation for victims of crime.

This list is not exhaustive; other exemptions exist and may apply to your situation. Contact Attorney Johnathon Burgess to learn more.

Federal Bankruptcy Exemptions

Federal bankruptcy exemptions include:

  • Homestead: As of 2018, you can exempt up to $23,675 in equity in your primary residence under federal exemption laws.
  • Personal Property: Federal law distinguishes different types of personal property and determines exemptions for each based on category. Common federal personal property exemptions are as follows: vehicle: $3,775; jewelry: $1,600; tools of your trade: $2,375; life insurance policy interest, loan value, or accrued dividends: $12,625; aggregate value of all household goods: $12,625 (with a limit of $600 for each individual item).
  • Retirement/Pension: The federal exemption for retirement accounts include all tax-exempt accounts and up to $1,283,025 for IRAs and Roth IRAs.
  • Injury Recovery: If you were injured and received compensation as part of a civil action, federal law exempts up to $23,675, not including compensation recovered for “pain and suffering” or monetary loss. Federal exemption laws also allow you to keep any compensation recovered for loss of future income/earnings, wrongful death (when the deceased provided your primary financial support), and criminal compensation.
  • Benefits and Support: Spousal support/alimony, child support, and/or maintenance payments you receive are typically exempt. Additionally, Social Security benefits, veterans’ benefits, unemployment, disability, and/or public assistance are all exempt under federal law. Life insurance payments received under a policy held by someone who served as your primary financial support are also generally exempt.
  • Wildcard: Federal law allows for what is known as a “wildcard” exemption. This rule allows you to exempt any property up to $1,250 plus up to $11,850 unused homestead exemption.

To learn more about federal bankruptcy exemptions, please call Burgess Law Firm and request a free consultation with our Batesville bankruptcy lawyer.

Our firm can be reached at (870) 293-6004 or by filling out and submitting an online contact form.