An Introduction To Bankruptcy Exemptions: Part 1

An Introduction To Bankruptcy Exemptions: Part 1

Based on the notion and policy that a person in financial turmoil must be able to retain certain property essential to everyday living in order to gain a fresh start, the law allows bankruptcy debtors to “exempt” or keep property from the reach of creditors.

In bankruptcy law, these are known as “exemptions.” They apply and are organized by property type or category. Each state has a system or set of exemptions that apply to debtors filing bankruptcy cases.

Prior to filing bankruptcy, a person generally owns property individually or jointly. This is a person’s individual estate. When a bankruptcy case is filed, a “bankruptcy estate” is created, and any property that is not exempt is placed in this estate and, therefore,  subject to the reach of creditors.

Thus, in Chapter 7 bankruptcy cases, exemptions determine what property debtors may keep or retain. In Chapter 13 bankruptcy cases, exemptions affect or reduce the amount that must be paid to certain creditors (typically, unsecured creditors) through a Chapter 13 repayment plan.

While most states, like Utah, require the use of their state exemptions, seventeen states allow debtors to choose between the state set and the system of exemptions known as the federal bankruptcy exemptions. California’s exemption system is unique in that it uses two sets of exemptions and offers debtors in the state a choice between sets.

Although the federal exemptions may not be used by debtors in Utah, the federal non-bankruptcy exemptions are available as supplements to the Utah exemptions. The federal non-bankruptcy exemptions protect property, including veterans’ benefits, disability benefits, and federal retirement accounts. Thus, Utah debtors do not have to make a choice; they may use both the federal non-bankruptcy exemptions and the Utah state exemptions.

The Federal Nonbankruptcy Exemptions

All code references are to 11 U.S.C. (Title 11 of the United States Code).

Retirement Benefits

5 USC § 8346 – Civil Service employees.

22 USC § 4060 – Foreign service employees.

10 USC § 1440 – Military service employees.

45 USC § 231m – Railroad workers.

42 USC § 407 – Social Security benefits.

38 USC § 3101 – Veteran’s benefits.

50 USC § 403 – CIA employees.

38 USC § 1562(c) – Military Medal of Honor Roll pensions.

Survivor’s Benefits

10 USC § 1450 – Military service.

28 USC § 376 – Judges, U.S. court directors, judicial center directors, and U.S. Supreme Court Chief Justice’s administrative assistants.

33 USC. §775 – Lighthouse workers.

Death and Disability Benefits

5 USC § 8130 – Government employees.

33 USC § 916 – Longshoremen, harbor workers.

42 USC § 1717 – War, risk, hazard, death, or injury compensation.

Miscellaneous Benefits

10 USC § 1035 – Military deposits to savings accounts (while on permanent duty outside the U.S.).

15 USC § 1673 – 75% of earned but unpaid wages or 30 times the federal minimum hourly wage; the greater of these two. (Judge may approve more.)

25 USC § 410 – Indian lands or homestead sales or lease proceeds.

25 USC § § 543 & 545 – Klamath Indian tribe benefits for those living in Oregon; agricultural or grazing lands to $5,000.

38 USC § 1970(g) – Military group life insurance

45 USC § 352(e) – Railroad workers’ unemployment

46 USC § 11110 – Seamen’s clothing

46 USC § 11111 – Debts of a seaman incurred while on a voyage

46 USC § 11109 – Seamen’s wages (except for spousal or child support)

38 USC §1970(g) – Life insurance benefits for serviceman’s Group Life Insurance or Veteran’s Group Life Insurance

Determining what bankruptcy exemptions apply to a prospective bankruptcy debtor’s case may require a complex legal analysis. Theron Morrison and his team of attorneys at MLG may help anyone with this complicated but necessary evaluation of their assets.

Talk to the Morrison Law Group about how the Utah exemptions may affect your potential Chapter 7 or Chapter 13 bankruptcy case. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.

An Introduction To Bankruptcy Exemptions: Part 1

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Theron Morrison

Utah’s top bankruptcy and consumer protection attorney.