Federal Non-bankruptcy Exemptions vs. State Exemptions

Although states can opt out of most federal bankruptcy exemptions, some are mandatory. These exemptions are available to everyone who is using his or her state’s exemptions, and are not available to anyone using the federal exemptions or the second California state option (which is very like the federal exemptions).

These exemptions are called non-bankruptcy exemptions, because they are found in areas of the United States Code other than the Bankruptcy Code. All of the bankruptcy exemptions are complete exemptions, not exemptions of a specified amount, except for the provision that at least 75% of wages will be exempt. If your state also specifies that a certain percentage of wages will be exempt, you don’t get to add the percentages together. You can choose whichever amount is higher.

Non-bankrputcy Exemptions
Asset	Exemption	US Code Section
Death and Disability Benefits for:	Longshoreman and harbor workers	33 § 916
	Risk, hazard, death, or injury of War	42 § 1717
	Government employees	5 § 8130
Retirement Benefits for:	Civil service employees	5 § 8346
	Military service employees	10 § 1440
	Foreign Service employees	22 § 4060
	Veterans	38 § 5301
	Military Medal of Honor roll	38 § 1562(c)
	Railroad workers	45 § 231m
	Social Security recipients	42 § 407
Survivor’s Benefits for:	Military service	10 § 1450
	US judicial employees including judges, center directors, and administrative assistants to the US Supreme Court Chief Justice	28 § 376
	Lighthouse workers	33 § 775
Miscellaneous	Military deposits made in savings accounts while the debtor was on permanent duty outside the US.	10 § 1035
	A minimum of 75% of weekly disposable wages or 30 times the federal hourly wage, whichever is greater. The bankruptcy judge may allow more for a debtor with a low income.	15 § 1673
	Indian lands, or proceeds from the sale of a homestead or lease.	25 § 410
	Benefits for Klamath Indians residing in Oregon.	25 §§ 543, 545
	Military group life insurance.	38 § 1970(g)
	Unemployment insurance benefits for railroad workers.	45 352(e)
	Wages for a seaman made under a written contract while the debtor was on a voyage.	46 § 11109
	Clothing of a seaman.	46 § 11110

Click here to read an Introduction to Bankruptcy Exemptions.

Case Studies: Federal Non-Bankruptcy Exemptions vs. State Exemptions

Case Study 1: The Texas Homestead Exemption

In Texas, an individual filing for bankruptcy can take advantage of the generous homestead exemption. For instance, John, a resident of Texas, owns a home with substantial equity. By utilizing the Texas homestead exemption, John can protect a significant portion of his home’s value from creditors. As a result, he can retain ownership of his primary residence and find financial stability during and after the bankruptcy process.

Case Study 2: The Federal Wildcard Exemption

In some states with limited wildcard exemptions, individuals like Sarah, who reside in such states, may choose to utilize the federal wildcard exemption. Sarah, facing bankruptcy, owns valuable personal property that exceeds the state’s exemption limits. However, by invoking the federal wildcard exemption, Sarah can protect her assets that would otherwise be vulnerable to liquidation by the bankruptcy trustee. This allows her to retain ownership of her cherished possessions and regain financial stability.

Case Study 3: Retirement Account Exemption Variations

Consider the case of Michael, who is facing bankruptcy and has a substantial balance in his retirement account. The level of protection for retirement accounts varies from state to state. In California, for instance, retirement accounts are generally fully exempt, safeguarding Michael’s savings from being used to repay creditors.

However, in another state with more limited exemptions, such as New York, only a portion of the retirement account may be exempt. This discrepancy underscores the importance of understanding the variations between state exemptions and the potential impact on one’s financial security during bankruptcy.