Bankruptcy Wildcard Exemptions – What Do You Need to Know?

Bankruptcy Wildcard Exemptions – What Do You Need to Know?
Information in this article does not constitute legal advice, it is for informational purposes only, and may not constitute the most up-to-date information. Readers should contact their attorney for advice on any particular legal matter.

When facing a financial crisis, keeping your property can provide a solid foundation for recovery. Fortunately, filing for bankruptcy relief can help you protect your property by utilizing bankruptcy exemptions. These exemptions allow you to safeguard certain types of property from being liquidated to pay off debts.

One type of exemption that can be particularly useful is the bankruptcy wildcard exemption. This exemption can protect any excess equity in your property or property that does not have a specific bankruptcy exemption. For instance, if you have a car worth $10,000 but the car exemption in your state only covers up to $5,000, you could use the wildcard exemption to protect the remaining $5,000 in equity.

It's important to note that bankruptcy exemptions and wildcard exemptions vary by state, and not all states offer a wildcard exemption. Additionally, there are limits to the amount of equity that can be protected with these exemptions. Consulting with a bankruptcy attorney can help you determine which exemptions are available to you and how to best utilize them.

How Does a Bankruptcy Exemption Work in Chapter 7 Cases?

When filing for bankruptcy under Chapter 7 or Chapter 13, debtors can claim bankruptcy exemptions provided by the Bankruptcy Code. These exemptions ensure that the equity in their assets is protected from being used to pay off unsecured creditors.

For instance, if a debtor claims the federal bankruptcy exemption for a vehicle, which is currently set at $4,450, and the Chapter 7 trustee sells their car, the trustee must pay the debtor $4,450 from the sale proceeds.

Now, let's say the debtor's vehicle is worth $15,000, and they owe $11,000 on their car loan. If the debtor claims their exemption, the trustee won't sell the car because there won't be any proceeds left after paying off the loan and the exemption amount to pay their unsecured debts.

However, if the vehicle is worth $25,000, the trustee will sell it, pay off the loan, and give the debtor the exempt amount. If there are any proceeds left after paying off the loan and exemption, the trustee will use them to pay the debtor's unsecured debts.

It's important to note that bankruptcy exemptions vary by state, and some states allow debtors to choose between state and federal exemptions. Understanding these exemptions is crucial when filing for bankruptcy, as they can help debtors keep some of their assets while eliminating their debts.

How Does a Bankruptcy Exemption Work in Chapter 13 Cases?

When you file for Chapter 13 bankruptcy, the trustee assigned to your case will not sell your assets. However, it's important to note that bankruptcy exemptions can still have an impact on your Chapter 13 plan.

If you have non-exempt equity, your plan payment may increase. For instance, if your vehicle has $5,000 in non-exempt equity, you may be required to pay more to your unsecured creditors. This is because they would receive at least that much if you filed for bankruptcy under Chapter 7.

Therefore, it's just as important to claim bankruptcy exemptions when filing for Chapter 13 as it is when filing for Chapter 7. Doing so can help ensure that you keep as much of your property as possible and that your plan payment remains manageable.

How Do I Use a Wildcard Bankruptcy Exemption?

If you're filing for bankruptcy, you may be able to use the federal bankruptcy wildcard exemption to protect your property. This exemption is outlined in 11 U.S. Code §522(d)(5) and currently allows you to protect up to $1,475 as of April 1, 2022. You can also use any unused portion of the federal homestead exemption, which is up to $13,950. If you're married and filing jointly, you can double the amount.

Using the bankruptcy wildcard exemption can be helpful if you own property with non-exempt equity or if there is no bankruptcy exemption to protect your equity. However, it's worth noting that states can choose to "opt out" of using federal bankruptcy exemptions. Therefore, you'll need to check your state law to determine whether you can use federal exemptions or if you're required to use state bankruptcy exemptions.

It's important to keep in mind that the bankruptcy wildcard exemptions specific to state law can vary. For instance, some states may not use the term "wildcard" because they only allow you to apply any unused portion of the homestead exemption to another asset. Additionally, the law may restrict how you can use the wildcard exemption in other states.

Get Help With Bankruptcy Exemptions Before Filing a Bankruptcy Case

When filing for bankruptcy without a lawyer, one of the most common and costly errors people make is failing to claim the correct bankruptcy exemptions. This is because they may not fully understand exemptions or how to use wildcard exemptions to safeguard assets that could be at risk in a Chapter 7 bankruptcy case.

But don't worry, we have a free tool that can help. Our Bankruptcy Exemptions Calculator can assist you in exploring the bankruptcy exemptions in your state. We also have a list of homestead bankruptcy exemptions if you are concerned about keeping your home during bankruptcy.

Bankruptcy can be a powerful tool for relieving debt, but it's important to have guidance. That's why we can help you locate a bankruptcy lawyer near you who offers free bankruptcy consultations. During this consultation, you can discuss your situation with the attorney, learn about the wildcard bankruptcy exemptions available in your state, and determine which chapter of bankruptcy is the best fit for you.

We provide tools and resources for various debt-relief options. Our goal is to help you find the right debt-relief option for your financial situation. You don't need to continue struggling with debts you can't pay. There is a way out of debt, and we can help you find it.

If you're interested in learning more, please contact us to speak with a member of our team. Most of our tools and services are provided at no charge to you.

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