More Protection for Debtor Assets in Bankruptcy
Posted By Steven J. Richardson on April 1, 2010
Someone filing bankruptcy does not necessarily lose everything they own and, contrary to popular myth, you do not automatically lose your house because you filed. This is because of a feature of the bankruptcy code called “exemptions.” These are protections against the liquidation of assets by creditors that exist in both federal and state law. Here in New Jersey, folks filing bankruptcy use the federal exemptions under section 522 of the bankruptcy code. Exemptions protect your assets up to a certain value (although some have no limit), and the amounts are adjusted every three years (starting in 1998) on the first of April. Thus the numbers have changed as of today to extend more protection, in keeping with inflation on the cost of replacement value. The adjustments are as follows:
Home Equity $20,200 to $21,625
Motor vehicles $3,225 to $3,450
Household goods and furnishings $10,775 to $11,525
Jewelry $1,350 to $1,450
Wildcard (Useable for Any Asset) $1075 to $1,150
(Unused home equity wildcard) $10,125 to $10,825
Tools of trade $2,025 to $2,175
Life insurance cash surrender value $10,775 to $11,525
Personal injury recovery $20,200 to $21,625
Bear in mind that these exemptions are per debtor. Therefore, assets held jointly by a married couple filing bankruptcy are protected by double these numbers! In this economy, with bankruptcy filings on the rise, this is a welcome change that allows people to keep important assets that might otherwise be lost. Although the adjustments are not huge, they can make a difference in some cases.
What is the difference between and equity exemption and a homestead exemption. The new Fed qualified homestead exemption 522(p)(1) is 146,450 but the equity exemptions is only 21,000. I have 130,000 in equity in the home I live in which was purchased only 18 months ago however, the equity came from my previous residence which I owned for 15 years. Would this qualify as a homestead?
Thank you for your reply
Rosemarie
The equity exemption I was referring to is one that protects the net equity in real or personal property used as your residence under the bankruptcy code. That is the $21,625. Where money came from to purchase that home is another issue. The section you are referring to (sec. 522(p)(1)) comes into play as a cap when using a state or local exemption to protect equity in a residence, as opposed to the federal bankruptcy exemption. As my article stated, in New Jersey we use the exemptions under the bankruptcy code, not New Jersey law. If you are contemplating bankruptcy, I would strongly suggest that you consult with an attorney to get an answer to this question as it applies to your situation.