Federal Non-bankruptcy Exemptions vs. State Exemptions
Table of Contents
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
Although states can opt out of most federal bankruptcy exemptions, some are mandatory. These exemptions are available to everyone who is using his or her state’s exemptions, and are not available to anyone using the federal exemptions or the second California state option (which is very like the federal exemptions).
These exemptions are called non-bankruptcy exemptions, because they are found in areas of the United States Code other than the Bankruptcy Code. All of the bankruptcy exemptions are complete exemptions, not exemptions of a specified amount, except for the provision that at least 75% of wages will be exempt. If your state also specifies that a certain percentage of wages will be exempt, you don’t get to add the percentages together. You can choose whichever amount is higher.
| Non-bankrputcy Exemptions | ||
|---|---|---|
| Asset | Exemption | US Code Section |
| Death and Disability Benefits for: | Longshoreman and harbor workers | 33 § 916 |
| Risk, hazard, death, or injury of War | 42 § 1717 | |
| Government employees | 5 § 8130 | |
| Retirement Benefits for: | Civil service employees | 5 § 8346 |
| Military service employees | 10 § 1440 | |
| Foreign Service employees | 22 § 4060 | |
| Veterans | 38 § 5301 | |
| Military Medal of Honor roll | 38 § 1562(c) | |
| Railroad workers | 45 § 231m | |
| Social Security recipients | 42 § 407 | |
| Survivor’s Benefits for: | Military service | 10 § 1450 |
| US judicial employees including judges, center directors, and administrative assistants to the US Supreme Court Chief Justice | 28 § 376 | |
| Lighthouse workers | 33 § 775 | |
| Miscellaneous | Military deposits made in savings accounts while the debtor was on permanent duty outside the US. | 10 § 1035 |
| A minimum of 75% of weekly disposable wages or 30 times the federal hourly wage, whichever is greater. The bankruptcy judge may allow more for a debtor with a low income. | 15 § 1673 | |
| Indian lands, or proceeds from the sale of a homestead or lease. | 25 § 410 | |
| Benefits for Klamath Indians residing in Oregon. | 25 §§ 543, 545 | |
| Military group life insurance. | 38 § 1970(g) | |
| Unemployment insurance benefits for railroad workers. | 45 352(e) | |
| Wages for a seaman made under a written contract while the debtor was on a voyage. | 46 § 11109 | |
| Clothing of a seaman. | 46 § 11110 | |
Click here to read an Introduction to Bankruptcy Exemptions.
Case Studies: Federal Non-Bankruptcy Exemptions vs. State Exemptions
Case Study 1: The Texas Homestead Exemption
In Texas, an individual filing for bankruptcy can take advantage of the generous homestead exemption. For instance, John, a resident of Texas, owns a home with substantial equity. By utilizing the Texas homestead exemption, John can protect a significant portion of his home’s value from creditors. As a result, he can retain ownership of his primary residence and find financial stability during and after the bankruptcy process.
Case Study 2: The Federal Wildcard Exemption
In some states with limited wildcard exemptions, individuals like Sarah, who reside in such states, may choose to utilize the federal wildcard exemption. Sarah, facing bankruptcy, owns valuable personal property that exceeds the state’s exemption limits. However, by invoking the federal wildcard exemption, Sarah can protect her assets that would otherwise be vulnerable to liquidation by the bankruptcy trustee. This allows her to retain ownership of her cherished possessions and regain financial stability.
Case Study 3: Retirement Account Exemption Variations
Consider the case of Michael, who is facing bankruptcy and has a substantial balance in his retirement account. The level of protection for retirement accounts varies from state to state. In California, for instance, retirement accounts are generally fully exempt, safeguarding Michael’s savings from being used to repay creditors.
However, in another state with more limited exemptions, such as New York, only a portion of the retirement account may be exempt. This discrepancy underscores the importance of understanding the variations between state exemptions and the potential impact on one’s financial security during bankruptcy.
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