If you are considering bankruptcy, you may hear or read about "doubling." Doubling in bankruptcy refers to being able to take twice the amount of an exemption available to you when you file a joint case with your spouse. By doubling, you are able to keep more of your property in Chapter 7 bankruptcy. In Chapter 13 bankruptcy, it may mean you pay less to your unsecured creditors through your plan.
Here's what doubling is and how it works in bankruptcy.
Filing bankruptcy places everything you own into the bankruptcy estate. In Chapter 7 bankruptcy, your bankruptcy trustee can sell the estate property to pay your creditors. In Chapter 13 bankruptcy, you must pay at least the value of the estate to your creditors through your plan.
Fortunately, state and federal exemption laws allow you to protect certain types of property, often up to a certain dollar amount. If your property is exempt, you get to keep it in Chapter 7 (and in Chapter 13 it doesn't go into the calculation as to how much you must repay creditors). In some cases, if you're married and file a bankruptcy case jointly with your spouse, you can double the dollar amount of some exemptions.
(To learn more about bankruptcy exemptions, see the Property and Exemptions in Bankruptcy topic.)
Doubling bankruptcy exemptions means that you and your spouse can each take the full allowed exemption amount on the same piece of property, as long as you own the property jointly.
Example. Alan and Grace are married. They file a joint bankruptcy case in a jurisdiction that allows doubling exemptions. They own one car titled in both their names, as well as a house deeded in both their names. They also have a boat, which is in Alan's name only, and various household furnishings. Their state's exemptions law exempt up to $4,000 in car equity, $100,000 in home equity, $3,000 in home furnishings, and $1,000 in boats. Alan and Grace can double their exemptions on the car, the house and the furnishings -- which brings their exemption amounts to $8,000, $200,000, and $6,000 respectively. However, only Alan can exempt the boat.; his exemption amount is $1,000.
Bankruptcy is federal law, and the federal Bankruptcy Code provides a list of exemptions you can use in your bankruptcy case. Each state has its own exemption laws as well. Some states allow you to choose between federal and state exemptions; others require that you use the state exemption amounts.
The federal exemptions allow spouses to double exemptions for joint property. However, whether you can double exemptions under state law depends on the state. Some allow doubling, some do not, and still others allow doubling of some exemptions but not others. (For example, you might be able to double the car and jewelry exemptions, but not the homestead exemption.)
Example. Ted and Mary live in Michigan. Michigan allows bankruptcy filers to choose whether to use the federal exemptions or the state exemptions. Ted and Mary choose the federal exemptions because they have a tax refund they want to protect, and Michigan law does not provide an exemption to protect it. Ted and Mary can double their exemptions on any property they own jointly, including their joint tax refund.
Example. John and Leanne live in Louisiana and file bankruptcy. Louisiana has opted out of the federal exemptions, so John and Leanne must use Louisiana state law to exempt their property. They own their house together (they are both on the deed); however, Louisiana law states that spouses may not double their exemptions for their homestead. The Louisiana homestead exemption at the time they file their case is $35,000, and they cannot exempt more than that of their home equity.
You can double your bankruptcy exemptions with your spouse if all of the following are true:
You cannot double your bankruptcy exemptions with your spouse if one or both of the following is true:
Example. Bob and Jill file a joint bankruptcy case. They choose the federal exemptions. Their car is paid for and it is worth $6,000. Although Jill drives the car, the title lists only Bob's name. The federal exemption for a motor vehicle at the time of the filing is $3,675. Because Jill does not have a legal ownership interest in the car, only Bob can exempt the vehicle, and their exemption is limited to $3,675. The remaining $2,325 is part of the bankruptcy estate.
See also: Bankruptcy Options for Married Couples