Filing bankruptcy creates the bankruptcy estate, which is where creditors go to recoup money owed. The bankruptcy laws in this country allow for people to have certain property “exempt” from the bankruptcy estate; these are things that will not be used to pay off creditors. Each person filing bankruptcy has to make a very important choice: Do I choose the federal exemptions or the state exemptions?
As you might expect, state exemptions differ from state to state (for example the state of Florida has an enormous homestead exemption meant to protect Florida filers from losing their principal residence).
For those filing in Massachusetts, here is a partial list of available exemptions:
Depending on the type of property one owns or wants to keep (exempt), two choices are provided – Federal Exemptions or State Exemptions.
1. Primary residence of up to $500,000 in equity, called the “Homestead” exemption
2. Disability benefits up to $400 a week
3. Life insurance proceeds provided there’s a clause not to pay creditors
4. Pensions or tax-exempt retirement accounts such as IRAs, 401(k)s, SEP and SIMPLE IRAs, and defined-benefit plans. Traditional, Roth IRAs up to $1,095,00
5. ERISA-qualified benefits including IRAs and KEOGHS to specified limits
6. Burial plots, tombs, and church pew
7. Beds, bedding, heating unit and clothing
8. Furniture up to $3000
9. Motor vehicle up to $700
10. Tools of Trade up to $500
Questions? Contact a bankruptcy attorney. Don’t risk missing out on your rights under the bankruptcy code.