March 14, 2019
Exemptions play an important role in Chapter 7 bankruptcy by allowing you to protect property in a bankruptcy case. The wildcard exemption, in particular, can be very useful. It can help you save a specific piece of property that you wouldn’t be able to keep in Chapter 7 bankruptcy otherwise.
Read on to learn more about the wildcard exemption and how it works in bankruptcy.
Each state has a list of exemptions. Some states allow you to use the federal bankruptcy exemptions instead. In Chapter 7 bankruptcy, the Chapter 7 bankruptcy trustee will sell the debtor's nonexempt property—property that can’t be protected with an exemption—and sell it for the benefit of the debtor's unsecured creditors. By contrast, if an item of property is exempt, the trustee can’t take it.
To learn more about exemptions and which states allow you to use the federal bankruptcy exemptions, see Bankruptcy Exemptions.
Many state exemption schemes include a wildcard exemption that typically can be applied to any type of property, including real estate, although some wildcard exemptions exclude property such as real estate, cash, or wages.
In practice, you might use a wildcard exemption to protect otherwise nonexempt property, such as an expensive family heirloom, or add it to another exemption to increase the exemption amount. For example, assume that your state's car exemption amount was $2,500 but that your car had $4,000 in equity. You could use $1,500 from a wildcard exemption to exempt all of your vehicle equity and keep the car.
Wildcard exemptions are a fixed amount. Some states also allow you to use any unused amount of a homestead exemption (an exemption that protects equity in your home) as a wildcard exemption, too.
The federal bankruptcy exemptions provide a wildcard exemption in the amount of $1,325 and up to an additional $12,575 of any unused homestead exemption and can be used to protect any property of your choosing. (11 U.S.C. § 522(d)(5).)
These figures reflect April 1, 2019, federal exemption amounts. The figures are revised every three years, and will change again on April 1, 2022.