When you file for bankruptcy, the law provides you with a number of exemptions you can use to protect some of your money and property from creditors. In some states, though, you have a choice of using state or federal exemptions and it can be challenging choosing the best option for your situation. Here are two things to consider which may make the choice a little easier for you.
Choose Based on Exemption Amounts
Whether the state or federal bankruptcy exemption is better for you will depend on your assets. Sometimes federal laws will provide more protection for some assets while state laws will be the better option for other assets.
For example, if you live in New Hampshire and have $80,000 in home equity, you may want to choose the state exemptions, because the homestead exemption in that state is $120,000 while it's only $23,675 for the federal exemption. However, the federal wildcard exemption is $1,250 plus $11,850 of any unused homestead exemption, while the same benefit is only $1,000 plus $7,000 of unused exemptions from other categories in New Hampshire. Wildcard exemptions can be used to protect any property.
It's best to take a look at the assets you want to protect the most and select the exemption system that provides the most protection.
Consider Whether Special Exemptions Apply
In addition to the standard exemptions, there are some federal non-bankruptcy exemptions some people may be eligible for based on their employer and/or the asset they want to protect. These exemptions are actually written into federal law, which is why they're not considered federal bankruptcy exemptions.
For instance, if you are a civil, foreign, or military employee, you can exempt an unlimited amount of retirement benefits using the federal non-bankruptcy exemptions. You would have to prove your status to the trustee, but your entire retirement fund would be safe from creditors once you perform the necessary conformation.
However, to use federal non-bankruptcy exemptions, you must opt to use state exemptions. Thus, you may need to prioritize what you want to protect. If you have a $120,000 in home equity and a $120,000 in your retirement account, you might have to decide whether you want to keep your home or your nest egg more, for instance.
For assistance in figuring out which exemption system is better for you or help filing for bankruptcy, contact a bankruptcy lawyer in your area.