In Massachusetts, when an individual files a bankruptcy, they have a choice as to whether to avail themselves of the federal or state exemptions.  Federal and state exemptions cannot be combined.  A debtor is limited to taking one or the other.  The use of your available bankruptcy exemptions help determine the property you can retain in a Chapter 7 bankruptcy and aid in determining how much pay certain creditors in Chapter 13 bankruptcy.

At one time, the federal bankruptcy exemptions were more liberal then the state exemptions.  The tide has now turned and, in my opinion, it is a tossup leaning towards the state exemptions because of the significant homestead exemption available in Massachusetts.

What Property Does the Federal Bankruptcy Exemptions Protect?

The following are some of the current federal exemption amounts.  The amounts are adjusted every three years in April and the last adjustment occurred in 2014.  If there is no dollar amount stated, you can exempt the entire asset regardless of its value.  Also, if you are a married couple filing jointly, you can double the exemption amounts listed below.

Federal Homestead Exemption

The homestead exemption is designed to protect the equity in your principal place of residence.  Keep in mind that you cannot use the homestead exemption on your investment or rental properties.  You can currently protect $22,975 of equity in your home under the federal exemptions; an amount that is significantly less than the automatic Massachusetts homestead of $125,000.00 and the recorded homestead declaration exemption of $500,000.00.

Personal Property Exemptions

Personal property includes all property you have other than real estate. The following are some of the most important federal personal property exemptions:

  • Domestic maintenance such as alimony or child support reasonably necessary for your support.
  • Life insurance payments that you need for support under policy of someone you were a dependent of.
  • Social security, unemployment benefits and compensation, veteran’s benefits, public assistance, and disability or illness benefits.

Exemptions Relating to Support or Benefits

  • Domestic maintenance such as alimony or child support reasonably necessary for your support.
  • Life insurance payments that you need for support under policy of someone you were a dependent of.
  • Social security, unemployment benefits and compensation, veteran’s benefits, public assistance, and disability or illness benefits.

Exemptions on Recovery Received Due to Injury

  • $22,975 for personal injury except pain and suffering or pecuniary loss
  • award for loss of future earnings needed for support
  • recovery for wrongful death of person you were a dependent of needed for support, and
  • compensation received for being a crime victim.

Wildcard Exemption

You can apply the federal wildcard exemption to any property you own.  Currently you are allowed $1,225 plus $11,500 of any unused portion of your homestead exemption to exempt any type of property. (To learn more, see our article on the Wildcard Exemption).

Retirement Account Exemptions

Retirement accounts that are exempt from taxation, which usually include most genuine non-fraudulent retirement accounts, are fully exempt. However there is a cap of $1,245,475 on IRAs and Roth IRAs.

So that you can compare the above-referenced federal bankruptcy exemptions to the Massachusetts state exemptions, what follows is a description of the exemptions provided by statue:

The following property of the debtor shall be exempt from seizure on execution:

First, The necessary wearing apparel, beds and bedding for the debtor and the debtor’s family, 1 heating unit used for warming the dwelling house, 1 stove, 1 refrigerator, 1 freezer and 1 hot water heater used primarily for the personal, family or household use of the debtor or a debtor’s family and the amount each month, not exceeding $500, reasonably necessary to pay for fuel, heat, refrigeration, water, hot water and light for the debtor and the debtor’s family;

Second, Other household furniture necessary for the debtor and the debtor’s family, not exceeding $15,000 in value;

Third, The bibles, schoolbooks and library used by the debtor or the debtor’s family, not exceeding $500 in value;

Fourth, 2 cows, 12 sheep, 2 swine and 4 tons of hay;

Fifth, Tools, implements and fixtures necessary for carrying on the trade or business of the debtor, not exceeding $5,000 in value;

Sixth, Materials and stock designed and procured by the debtor which is necessary for carrying on the trade or business of the debtor and intended to be used or wrought therein, not exceeding $5,000 in value;

Seventh, Provisions necessary and procured and intended for the use of the debtor’s family or the money necessary therefor, not exceeding $600 in value;

Eighth, 1 pew occupied by the debtor or the debtor’s family in a house of public worship; provided, however, that nothing herein shall prevent the sale of a pew for the nonpayment of a tax legally imposed thereon;

Ninth, Boats, fishing tackle and nets of a debtor who is a fisherman and actually used by the debtor in the course of the debtor’s business, not exceeding $1,500 in value;

Tenth, The uniform of an officer or soldier in the militia and the arms and accoutrements required by law to be kept by the officer or soldier;

Eleventh, The rights of burial and tombs in use as repositories for the dead;

Twelfth, 1 sewing machine in actual use by each debtor or by his family, not exceeding $300 each in resale value, and 1 computer and 1 television, in actual use by each debtor’s family;

Thirteenth, Shares in co-operative associations subject to chapter 157, not exceeding $100 in value in the aggregate;

Fourteenth, Estates of homestead as defined in chapter 188 or, in lieu thereof, the amount of money each rental period, not exceeding $2,500 per month, necessary to pay the rent for the dwelling unit occupied by the debtor and the debtor’s family;

Fifteenth, $2,500 in cash or savings or other deposits in a banking or investment institution, wages equal to the greater of 85 per cent of the debtor’s gross wages or 50 times the greater of the federal or the Massachusetts hourly minimum wage for each week or portion thereof and the full amount owing or paid to a person as public assistance;

Sixteenth, An automobile necessary for the debtor’s personal transportation or to secure or maintain employment, not exceeding $7,500 of wholesale resale value; provided, however, that the equitable value of a vehicle owned or substantially used by debtor who is either a handicapped person or a person 60 years of age or older shall be exempt up to $15,000 in wholesale resale value;

Seventeenth, The debtor’s aggregate interest in any personal property, not to exceed $1,000 in value, plus up to $5,000 of any unused dollar amount of the aggregate exemptions provided under clauses Second, Fifth and Sixteenth; and

Eighteenth, The debtor’s aggregate interest, not to exceed $1,225 in value, in jewelry held primarily for the personal, family or household use of the debtor or the debtor’s spouse or dependent.

As to the Massachusetts Homestead Exemptions, please see the section specifically addressed to Homestead Exemptions.

Which group of exemptions you avail yourself in your bankruptcy should be something that is explored with an experienced bankruptcy practitioner.  Your bankruptcy lawyer should be able to assist you in coursing your way through the maze of applicable exemptions very often resulting in the retaining of your assets post-discharge.

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