Keeping your property helps give you the foundation to recover after a financial crisis. Using bankruptcy exemptions allows you to protect property when filing for bankruptcy relief. Bankruptcy wildcard exemptions can protect the excess equity in property or property that does not have a specific bankruptcy exemption.
Let’s take a closer look at bankruptcy exemptions, including bankruptcy wildcard exemptions.
How Does a Bankruptcy Exemption Work in Chapter 7 Cases?
The Bankruptcy Code provides bankruptcy exemptions debtors claim when filing Chapter 7 or Chapter 13. The bankruptcy exemptions protect the equity in assets from being used to pay a debtor’s unsecured creditors. In a Chapter 7 case, the trustee sells assets and uses the money to pay unsecured claims. However, the trustee cannot use any equity protected by a bankruptcy exemption.
For example, the federal bankruptcy exemption for a vehicle is $4,450. Therefore, if the Chapter 7 trustee sells your vehicle, he must pay you $4,450 if you claim the federal bankruptcy exemption.
Let’s assume your motor vehicle is worth $15,000. You owe $11,000 on your car loan, and you claim $4,450 as your exemption. The Chapter 7 trustee would not sell your car because there would not be any funds remaining after paying the loan and your exemption to pay your unsecured debts.
However, let’s assume your car is worth $25,000. After selling the car, paying off the loan, and giving you the exempt amount, there would be money left over after paying off the loan and paying your exemption to pay your unsecured debt.
How Does a Bankruptcy Exemption Work in Chapter 13 Cases?
Chapter 13 trustees do not sell assets. However, bankruptcy exemptions impact Chapter 13 bankruptcy plans.
Non-exempt equity can increase the amount of your plan payment. For example, if your vehicle has $5,000 in non-exempt equity, you might be required to pay more to your unsecured creditors because they would receive at least that much if you filed bankruptcy under Chapter 7.
Therefore, it is just as crucial to claim bankruptcy exemptions when filing Chapter 13 as it is when filing a Chapter 7 bankruptcy case.
How Do I Use a Wildcard Bankruptcy Exemption?
The federal bankruptcy wildcard exemption is stated in 11 U.S. Code §522(d)(5). As of April 1, 2022, the wildcard amount is $1,475. However, you can also use up to $13,950 of any unused portion of the federal homestead exemption. Married couples filing a joint bankruptcy petition can double the amount.
If you own property that has non-exempt equity or there is no bankruptcy exemption to protect the equity, you can use bankruptcy wildcard exemptions to protect the equity.
However, the Bankruptcy Code allows states to “opt out” of using federal bankruptcy exemptions. You need to check your state law to determine whether you can use federal exemptions or if you are required to use state bankruptcy exemptions.
The bankruptcy wildcard exemptions specific to state law vary. For example, some states might not use the term “wildcard” because they only allow the debtor to apply any unused portion of the homestead exemption to another asset. In addition, the law may restrict how debtors can use the wildcard exemption in other states.
Get Help With Bankruptcy Exemptions Before Filing a Bankruptcy Case
One of the most costly and common mistakes people make when filing bankruptcy without a lawyer is failing to claim the correct bankruptcy exemptions. They may not understand exemptions or how to use bankruptcy wildcard exemptions to help protect assets that could be in jeopardy in a Chapter 7 bankruptcy case.
Our free Bankruptcy Exemptions Calculator is a tool you can use to explore the bankruptcy exemptions in your state. We also have a list of homestead bankruptcy exemptions if you are concerned about keeping your when in bankruptcy.
Bankruptcy is a powerful debt-relief tool. We can help you locate a bankruptcy lawyer near you who provides free bankruptcy consultations. You can discuss your situation with the attorney, learn about the wildcard bankruptcy exemptions for your state, and discuss which chapter of bankruptcy is right for you.
At Ascend, we also provide tools and resources for various debt-relief options. Our goal is to help you discover the right debt-relief option for your financial situation. You do not need to continue struggling with debts you cannot pay. There is a way out of debt. We can help.
Contact us to speak with a member of our team. Most of our tools and services are provided at no charge to you.