What you can protect in bankruptcy is usually limited to certain kinds of property and certain dollar amounts — but not always.
In a number of articles, we’ve discussed in general what exemptions are and why they are important in bankruptcy. But exactly what property do they protect?
Before looking at the numbers, bear in mind a couple of facts about how they work.
- In bankruptcy, state law determines what property a debtor can protect. The exemptions below apply to those who have lived in South Carolina for at least two years before filing. For debtors who have moved during those two years, the exemptions are determined by the law of the state where they lived during the six months before that.
- These numbers apply to each person who files. If a husband and wife file jointly, they can stack their exemptions on any jointly owned property, essentially doubling the value protected.
- Property may be exempted under more than one exemption if it fits in each of the respective categories. In that situation, the available limits of multiple exemptions can be stacked to cover the value of that item. More about that in a moment.
- The limits are odd numbers because they are adjusted for inflation every two years. The numbers below apply until July 1, 2014.
The oldest exemption protects the debtor’s home. In South Carolina, the homestead exemption covers any real or personal property that the debtor, or any dependent, uses as a residence. This extends to both permanent homes and mobile homes and also covers the underlying land. It could also cover a motor home, boat, camper, or conceivably even a car, if the debtor or dependent actually lives there. If the debtor owns a parcel of land adjoining the residence, it is also exempt if used for purposes connected to the home. The limit is $56,150 per person but not more than $112,275 for one residence, regardless how many people have an ownership interest.
Debtors who do not claim a homestead exemption, either because they do not own a home or because the home has no equity, can instead protect up to $5,625 of liquid assets, including cash, bank accounts, tax refunds, or other receivables.
For many consumers, the next most important property is a car or truck. South Carolina residents can exempt up to $5,625 of the value of a motor vehicle.
The $4,500 exemption for household goods means trustees can rarely reach the debtor’s furniture or appliances. This exemption covers anything used primarily for personal, household, or family purposes, so long as the item is of a kind customarily found in homes. By contrast, if an item is used for the debtor’s business or employment, it is likely exempt as a tool of the trade, subject to a limit of $1,675.
The exemption for jewelry protects any number of items up to a total value of $1,125.
Items of property that do not fall within an exemption category may be protected by the “wild card” exemption, which applies literally to any property. To use this exemption, the debtor must have one or more of the above “categorical” exemptions that remain unused. The debtor can convert the unused exemption limits into a wild card exemption, up to a total of $5,625. Let’s say Edna needs $40,000 of homestead exemption to protect the equity in her West Columbia home. That leaves $16,150 of that exemption unused. She can fund (qualify for) the maximum $5,625 wild card exemption and use that amount on anything she owns. She can also stack the wild card on another applicable exemption. So if her car has $8,000 in equity, she can combine $2,375 of wild card with her motor vehicle exemption ($5,625) to equal that value.
The cash value of a life insurance policy is exempt up to $4,500. But if the beneficiary of the policy is the debtor’s spouse or dependent, the exemption is unlimited.
Exemptions for several other kinds of property and benefits are either unlimited or virtually unlimited. Foremost among these are retirement or similar employee benefit accounts, including pension, profit-sharing, IRA, SEP, 401(k), and other ERISA-qualified plans.
For certain payment entitlements, the exemption is not only unlimited but also extends to any funds or property derived from those payments, as long as the money is traceable. These include social security, unemployment, veteran’s, and disability benefits as well as alimony and support payments.
Workers compensation and personal injury claims, and the money they produce, are exempt without limit. However, a certain damages resulting from personal injury may not be exempt.
It may seem a simple matter to apply these numbers to your property and funds. But case law has limited or extended the reach of most exemptions, especially the wild card. If you are considering bankruptcy, you should expect your lawyer to discuss with you a liquidation analysis on your property and advise what if anything is at risk.