Mastering Bankruptcy Exemptions: Your 3-step Ultimate Guide to Protecting Assets and Achieving Financial Renewal

Introduction

Before filing bankruptcy, some clients are fearful. Does the bankruptcy court take everything I own? Will I keep my house? Will they take my car? What is the catch?

A bankruptcy filing allows an individual or a couple to discharge their debt. The “catch”, if any, is that the individual or couple are only allowed to keep a certain amount of property free and clear. The property is kept free and clear by the use and application of bankruptcy exemptions.

Bankruptcy exemptions allow individuals filing for bankruptcy to protect certain types and amounts of property from being used to satisfy their debts. In other words, these exemptions enable debtors to retain essential assets necessary for a fresh start after bankruptcy. The specific exemptions vary from state to state, even though bankruptcy laws are primarily governed by federal law. This article will discuss the bankruptcy exemption in the state of Florida.

Here is how exemptions generally work:

1. Determine what Exempt Property you have: Florida has a list of exempt property or asset categories and a maximum allowable value for each category. They include:

A Homestead Exemption (protecting a certain amount of home equity) – A homestead exemption from bankruptcy is different than a property appraiser’s homestead exemption. A bankruptcy homestead exemption means that a debtor is exempting their home, where they live and reside and any status by the property appraiser or tax collector does not affect the bankruptcy court’s consideration.  The amount of equity you are able to protect increases occasionally. As of the 2022 update (as of April 1, 2022) the limit of a homestead exemption is $189,050.00. You must have also owned your home for 1,215 days (approximately 3 ½ years) before you filed bankruptcy.

A Vehicle Exemption –Florida Statute §222.25 permits an exemption of no more than $1,000 in value toward the equity of a single motor vehicle. If a couple files bankruptcy together, each spouse can put $1,000 (for a total of $2,000) toward the equity of two (2) vehicles.

Personal Property Exemption – Under the Florida Constitution, Article X, §4(a)(2), allows a debtor to exempt their personal property, which includes furniture, appliances, clothing, tools of the trade for work, firearms, and sports and hobby equipment.  

1. If you file individually and you own a home, you are able to exempt $1,000 in personal property.
2. If you file individually and you DO NOT own a home, you are able to exempt $5,000 in personal property.
3. If you file with your spouse and you own a home, you are able to exempt $2,000 in personal property.
4. If you file with your spouse and you DO NOT own a home, you are able to exempt $10,000 in personal property.

Retirement accounts – A debtor’s retirement account is FULLY exempt from bankruptcy, provided that the retirement account is in a proper plan which is exempt from taxation by the Internal Revenue Service.

Bank Accounts with income from working or Social Security benefits – Under Florida Statute §222.11(2)(c), disposable earnings of a person other than a head of family may not be attached or garnished in excess of the amount allowed under the Consumer Credit Protection Act, 15 U.S.C. §1673.

2. Value the Exempt Property: The value of your property is very important. If the value of your asset falls within the allowed exemption amount, you can typically keep that asset.

For Homestead Exemption – Review the Property Appraiser’s website for the county in which you live. The “Just Market Value” is a good estimate of how much your property is worth.

A Vehicle Exemption – Most bankruptcy courts, by and through the Trustees, use Kelley Blue Book Private Party values to determine what your car is currently worth. Find the Kelley Blue Book website and get your car’s value here.

Personal Property Exemption – For your personal property, consider what you might be able to sell the property for at a yard sale. While you may love your dining room table, a stranger may not pay $500.00 for a 20-year-old table with a missing chair and scratches. Visit neighborhood yard sales, check Facebook marketplace, or even the mobile app LetGo to see what similar items in your area are selling (and being bought) for.

Retirement accounts – The value of your retirement account will be the account balance on the date that you file. For this reason, make sure you have your last statement available and confirm the current balance when preparing your paperwork or before meeting with your attorney.  

Bank Accounts with income from working or Social Security benefits – Just like with the retirement accounts, the value of your bank account will be the account balance on the date that you file. Make sure you have your last three months of statements available and confirm the current balance when preparing your paperwork or before meeting with your attorney.  

3. Determine what Non-exempt Property you have:  Any property that exceeds the allowed exemption value may be considered non-exempt. In that case, you will have the option to keep and pay the amount you are over the exemption or surrender personal property that totals the amount you are over the exemption. If you fail to make any decision or take any action with non-exempt property or if you choose to surrender personal property, non-exempt property may be sold by the bankruptcy trustee to generate funds to repay creditors. This is often the “catch” people filing for bankruptcy are thinking of. A full and complete review of your finances will help determine if you have non-exempt property or not.

Remainder of the Bankruptcy case

Once your bankruptcy case is past the 341 Meeting of Creditors and the deadline to object to your exemptions passes, you will be heading towards a discharge of the debt. The final step is to make sure you completed your Debtor Education Course with your Credit Counseling Provider and file that certificate with the Bankruptcy Court.

Once you receive your Discharge of Debts and the bankruptcy process is completed, you are no longer legally obligated to pay the debts that you discharged in bankruptcy. You would however, continue to pay on your reaffirmed debts for the items that you decided to keep (such as a home or a car) or any debt that is not dischargeable (such as taxes, restitution, alimony, child support, or student loans.

Conclusion

By allowing individuals to keep a reasonable amount of essential assets, bankruptcy laws allow debtors to rebuild their lives without being burdened by excessive debt.

If you are an individual or couple considering personal bankruptcy, please consider a consultation with a qualified bankruptcy attorney to understand the specific exemptions applicable to your particular situation (and state). Bankruptcy laws can be complex, and professional guidance helps ensure that debtors make informed decisions to maximize the benefits of the exemption process.

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