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I'm going to talk for a minute about the exemptions that are available in bankruptcy, and by exemptions
we mean property that's off the table that the trustee the creditors cannot touch he
property and you continue to own it post bankruptcy. In discussing these keep in mind that I'm
giving you just the generalities here and in all of these different areas there are
specifics. And if ever the phrase the devil is in the details is applicable it's in bankruptcy
law. So keep in mind that this is just a general overview of the primary exemptions that are
available.
Number one is probably the homestead exemption any equity you have in your homestead property
is exempt regardless of the amount. That used to be a big deal here in Florida over the
last few years and equity in homes almost become a rarity.
Next would be IRA and pension money. Any money that you've accumulated in your 401(k) or
other type of qualified retirement plan are exempt from the claims of creditors regardless
of the amount. You also have an earned income exemption. And that is any income that you
have earned in the six months preceding the filing of the bankruptcy is exempt essentially
regardless of the amount.
You have Social Security exemption benefits that you are to receive or benefits that you
have received from Social Security are exempt. However the exemption for accumulated Social
Security benefits is not absolute. There's language in the law that says the accumulated
Social Security benefits that are reasonable and necessary to maintain your lifestyle and
the question always comes up well what does that mean? And that's part of the dangerous
aspect of that is that it depends on a case to case basis. So you can't guarantee that
all accumulated Social Security benefits are exempt.
You've got a personal property exemption. Personal property can be both tangible personal
property your your your clothes your watch your furniture, and it can be intangible property
such as cash, CDs, stocks and bonds that you own outside of an IRA or pension. The law
on personal property exemption is that if you are not taking advantage of the homestead
exemption, in other words you're underwater in your house or you're renting then you each
have each spouse if you're filing husband and wife jointly, each spouse has a total
of $5,000 of personal property exemption.
If you are taking advantage of Homestead because you have equity in your home then that personal
property exemption is only $1,000 each.
You also have automobile exemption each person has $1,000 of automobile exemption. Now, so
you have your personal property exemption and you have your automobile exemption to
the extent that you do not use the personal property exemption you can roll it over and
use it on the car.
So in theory between cars and personal property you can have as much as $12,000 of exemptions.
Now the key element there becomes, well how do we value this personal property? What value
do we put on our clothes or our furniture and the good news there is that generally
speaking I refer to it as garage sale pawn shop value. It's not what you would pay for
it; it's not what you would have to pay if you went to the store to replace all your
clothes. It's what would they be worth if you had a sale on Saturday and everything's
got to go by sundown. And in that world we would say generally that the clothes would
be virtually worthless and the furniture is not far behind.
So $12,000 of personal property exemption for furniture clothing cars can cover it off
a lot of ground.
Finally another critical exemption can be what we call tenancy by the entirety's property.
Tenancies by the entireties property is essentially property that a husband and wife owned together
as husband and wife. This exemption comes into play when only one of the spouses is
filing and I often explain it this way. In a marriage there are two people but there
are three property owners. There's the property that the husband owns. There's the property
that the wife owns and then there's this third property owner that's the husband and wife
together as husband and wife. And if an individual is filing let's say for example only the husband
is filing back bankruptcy so out of these three property owners the creditors can only
look to what the husband owns by himself what the wife owns we don't even list.
Because he has no ownership interest in that and what the husband and wife owned jointlly,
we list it but we exempt all of it as tenancy
by the entireties. So those are your fundamental exemptions in
bankruptcy and as I said in the beginning, each one of those has certain nuances and
exemptions which can get real complicated so it's very important that if you think you
have these exemptions to apply that you talk with a competent professional to make sure
that they apply in your unique circumstances.