State v. Federal Bankruptcy Exemptions

Learn when you must use your state exemptions and when you have a choice between state and federal exemptions.

Exemption laws exist to prevent creditors from taking all of a debtor’s property and leaving the debtor destitute. Both federal and state exemption laws are used in bankruptcy to ensure that a debtor has a chance at a fresh start.

In this article, you’ll learn when you’ll use state exemptions, and, if you have a choice between state and federal exemptions, what to consider when deciding which system will be best for you.

Find out more about bankruptcy exemptions in both Chapter 7 and Chapter 13 bankruptcy.

Federal vs. State: When Can You Choose?

When Congress created the federal exemptions, it also permitted the states to create exemption systems and choose not to use the federal exemption system. Since then, every state has created its own set of exemptions and many, but not all, have opted out of the federal system entirely.

Your state might require you to use its set of exemptions or let you choose between state and federal exemptions. If you get to choose, you must pick either the federal bankruptcy exemptions or the exemption system of your state. You can’t mix the two exemption systems.

States That Offer a Choice

If you live in one of the following states then you have the option of choosing between the state and federal exemption systems: Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin. Otherwise, you must use the exemption system of your state.

Federal Bankruptcy Exemptions

Below are some key federal exemptions that almost all bankruptcy filers will find relevant. Keep in mind that updates to the exemption amounts occur every three years. April 1, 2019 adjustment figures are below. The next change will occur on April 1, 2022.

If you’re a married couple filing a joint bankruptcy and you both have an ownership interest in an asset, you can double the federal exemption amount listed below. You’ll find a full list of the federal bankruptcy exemptions here.

Homestead Exemption

The federal homestead exemption protects the equity you have in your house. As of April 1, 2019, the federal homestead exemption is $25,150 ($23,675 for cases filed between April 1, 2016, and March 31, 2019). (11 U.S.C. § 522(d)(1).) To learn more about how this exemption works, see The Homestead Exemption.

Personal Property Exemptions

Personal property is any property you own other than real estate. The most regularly used personal property exemptions allowed under the federal system are, as of April 1, 2019, $4,000 for a motor vehicle, $1,700 for jewelry, and $13,400 in total, $625 per item for household goods and furnishings, appliances, and clothing. The figures for cases filed between April 1, 2016, and March 31, 2019, are $3,775, $1,600, $12,625, and $600 respectively. (11 U.S.C. § 522(d)(2),(3),(4).)

Wildcard Exemption

The federal system’s wildcard exemption, as of April 1, 2019, is $1,325 ($1,250 for cases filed between April 1, 2016, and March 31, 2019) which you can use for any type of property. Also, if you haven’t used your entire homestead exemption, then $12,575 ($11,850 for cases filed between April 1, 2016, and March 31, 2019) of any unused portion can be used as a wildcard as well. (11 U.S.C. § 522(d)(5).) To learn more, see Wildcard Exemptions in Chapter 7 Bankruptcy.

Retirement Accounts

With a few exceptions, all money you have in retirement accounts is exempt under the federal system as well as the state systems because states are not able to opt out of these exemptions. There is a cap of $1,362,800 ($1,283,024 for cases filed between April 1, 2016, and March 31, 2019) on IRAs and Roth IRAs. (11 U.S.C. § 522(n).)

How Do State Exemptions Differ From Federal Exemptions?

Since each state has a different exemption scheme, you must look to your individual state’s exemption laws to determine how they are different from the federal system. For example, some states allow much greater, even unlimited, homestead exemptions while others offer less than the federal amounts.

California doesn’t allow you to use the federal exemptions, but it has two different sets of state exemptions you can choose from. One set is similar to the federal system and allows a generous wildcard exemption while the other is designed to exempt a much greater amount of home equity.

Should I Choose State or Federal Exemptions?

The answer to this question will depend on if you live in a state that offers a choice between the two. If you do, then look to your specific circumstances. For example, if you have a lot of equity in your house and you live in a state with an unlimited homestead exemption, then you would likely pick the state exemption over federal exemptions.

The Federal Nonbankruptcy Exemptions

These exemptions are specialized exemptions that protect civil, military, or foreign service employees, social security recipients, and veterans. You can use these exemptions if you’re using a state exemption system in addition to your state's exemptions.

Updated: March 15, 2019

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