Federal Bankruptcy Exemptions

These exemptions are found in 11 U.S.C. §522 and can be used by anyone who is qualified to file bankruptcy in a state that allows its residents to use the federal exemptions, or by anyone who doesn’t qualify under residency requirements to use state exemptions. You have to live in a state for at least 91 days before you can file for bankruptcy there. The states that allow you to use the federal exemptions are: 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.

Though federal law allows states to opt out of most federal exemptions, a few apply in all jurisdictions. The most important are the pensions exemptions listed below. Every state’s exemptions automatically include these.

The dollar amount allowed under each exemption is updated for inflation every 3 years with the next increase due in April 1, 2022.

Click here to read an Introduction to Bankruptcy Exemptions.

Case Studies: Insurance Considerations in Federal Bankruptcy Exemptions

Case Study 1: Homeowner’s Insurance and Homestead Exemptions

When utilizing federal bankruptcy exemptions, individuals may be able to protect their primary residence through homestead exemptions. Homestead exemptions allow debtors to exempt a certain amount of equity in their home from the bankruptcy process. In this case, homeowners’ insurance becomes essential.

Homeowner’s insurance provides coverage for damage or loss to the property and its contents. By maintaining adequate homeowner’s insurance, individuals can protect their home from risks such as fire, theft, or natural disasters.

Having insurance coverage in place can ensure that the equity in the home, protected under the homestead exemption, remains safeguarded.

Case Study 2: Retirement Accounts and Life Insurance

Federal bankruptcy exemptions often include provisions for retirement accounts, such as 401(k)s or IRAs, which are designed to help individuals save for retirement. These retirement accounts are typically protected from creditors during bankruptcy proceedings. However, it is important to note that the exempted amount may have limits.

To enhance the protection of retirement savings, individuals can consider having life insurance policies with appropriate beneficiaries. Life insurance provides a death benefit to designated beneficiaries upon the insured’s passing.

By naming beneficiaries, the proceeds from the life insurance policy can be shielded from creditors and remain accessible to support the financial well-being of loved ones.

Case Study 3: Personal Property and Personal Property Insurance

Federal bankruptcy exemptions may include provisions for personal property, such as household goods, clothing, and other essential items. Personal property insurance can be valuable in protecting the value of these assets. Personal property insurance provides coverage for the loss, theft, or damage to personal belongings.

By maintaining personal property insurance, individuals can mitigate the financial risks associated with potential losses and ensure that their exempted personal property remains protected during the bankruptcy process.