Wildcard Exemptions in Chapter 7 Bankruptcy

Learn how you can use a wildcard exemption to protect property in Chapter 7 bankruptcy.

Exemptions play an important role in Chapter 7 bankruptcy. The wildcard exemption, in particular, can be very useful to debtors trying to save a particular piece of property in Chapter 7 bankruptcy.

Read on to learn what the wildcard exemption is, and how it works in bankruptcy.

The Role of Exemptions in Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, the bankruptcy trustee may sell the debtor's nonexempt property in order to pay the debtor's unsecured creditors. If an item of property is exempt, however, the trustee cannot take it.

Each state has a list of exemptions -- certain types of property that are exempt up to a certain dollar amount. Some states allow you to use the federal bankruptcy exemptions instead. 

(To learn more about exemptions and which states allow you to use the federal bankruptcy exemptions, see our Bankruptcy Exemptions topic area.)

The Wildcard Exemption

Many state exemption schemes include a wildcard exemption. This is an exemption that typically may be applied to any form of personal property. Some states allow you to use it towards any type of property (real estate included). You can use it to exempt an item of property that is not otherwise exempt in your state's scheme. For example, you could exempt a family heirloom that would normally be nonexempt. Or you can add the wildcard exemption to another exemption to increase the exemption amount. For example, if your state's car exemption amount if $2,500 and your car, which is unencumbered by a loan, is worth $3,000, you could use $500 from a wildcard exemption to exempt the entire value of your car.

Some wildcard exemptions are a fixed amount. Other states allow you to use any unused amount of a homestead exemption (an exemption that protects equity in your home) as a wildcard exemption. Some states provide both -- a separate wildcard exemption and the unused portion of a homestead exemption.

The federal bankruptcy exemptions also provide a wildcard exemption in the amount of $1,250 and up to an additional $11,850 of any unused homestead exemption that can be used for any type of property (as of 2016). The federal exemption amounts change every three years.

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