What are the Bankruptcy Exemptions and Which Assets can be Protected in Bankruptcy?

When filing either chapter 7 or chapter 13 bankruptcy, each individual debtor is allowed to exempt a limited amount of equity in real property, cash, personal assets and other property while still obtaining a discharge of most debts. Only when a debtor exceeds the available exemptions will they have “non-exempt” assets that will either be liquidated in chapter 7 or, alternatively, the debtor will effectively pay to keep over the duration of a chapter 13 plan.

Bankruptcy exemption law allows for the exclusion of certain assets from the bankruptcy estate and, thereby, protects such assets from the reach of either creditors or the bankruptcy trustee. When filing bankruptcy in Minnesota, a debtor elects to utilize either the federal exemptions or the Minnesota state exemptions. Since the federal exemptions are more liberal as to what assets can be protected, a Minnesota debtor will only elect state exemptions when they have over $20,000 in equity in a homestead (or, less commonly, a significant certain asset such as pending insurance proceeds or personal injury award). Most debtors however opt to use federal exemptions for the availability of up to a $12,775 “wildcard exemption” which can be used to protect any assets which are not otherwise protected under a separate federal exemption.

As of the date of this post, the federal exemptions provide for the following amounts per debtor:

Asset Type

 

Available Federal Exemption*
Equity in homestead property

 

$23,675 per debtor (double for joint filers)
Household goods, furniture and wearing apparel

 

$12,625 (limit of $600 per item in this category)
Wedding rings

 

$1,600
Alimony / child support

 

unlimited so long as funds are necessary for support of the family
Unemployment / Disability benefits (future benefits only)

 

unlimited
Social Security benefits (future benefits only)

 

unlimited
Cash value of life insurance policy

 

$12,625 (only one policy is exempt)
Vehicle equity

 

$3,775 (only one per debtor)
Personal injury claims that are not yet settled

 

$23,675
ERISA-qualified retirement accounts such as 401(k), 403(b) and 408 plans

 

unlimited
Individual Retirement Accounts (IRAs)

 

usually unlimited subject to certain limits on recent contributions
Other retirement benefit plans including Public Employee Retirement Association (PERA), Minnesota State Retirement System (MSRS), and Teachers Retirement Association of Minnesota (TRA)

 

unlimited so long as the employee does not have a right to withdrawal of funds upon termination
Tools of trade (must be used in employment)

 

$2,375
Workers Compensation

 

unlimited only if claim has not been settled or paid out (however proceeds already received can be exempted under Minnesota law)
Anything else not exempt under any other provision such as excess equity in a vehicle, cash, bank account balances, second vehicles, recreational equipment, stocks and bonds, ownership interest in a business, inheritance proceeds, claims against a business or individual, tax refunds, etc. up to $13,100 total “wildcard” / (d)(5) exemption

 

* These amounts are valid as of 2016 and adjust periodically. You should consult a bankruptcy attorney to analyze the available exemptions for your particular circumstances.

 

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