Property which is deemed exempt when filing for bankruptcy in Massachusetts is property which will not be liquidated or given to the bankruptcy trustee. Exempt property is not considered part of the bankruptcy estate, and as such, is property that may be kept by the debtor.
When filing for bankruptcy in Massachusetts, you will need to choose between two schemes of exemptions. Massachusetts is one of seventeen states which allow the debtor to choose between either a state or federal exemption scheme and there are different reasons for a debtor to make either choice.
The Massachusetts (State) Bankruptcy Exemption Scheme
Filing for bankruptcy and choosing the exemption scheme which exists in Massachusetts allows the petitioner to utilize a number of statutory provisions to exempt property from the bankruptcy estate. For example, by filing for a homestead exemption a Massachusetts resident can exempt up to $500,000 of equity in a primary residence. Without filing a homestead on your primary residence, the homeowner automatically qualifies for a $125,000 exemption in equity in the primary residence. There are several other aspects of the provisions of the Homestead Act which are useful in the bankruptcy context and are beyond the scope of this article.
In addition to the exempting equity from the bankruptcy estate in the debtor’s primary residence it may be possible to claim $7,500 of exemption in a motor vehicle (or more if disabled or elderly) under the Massachusetts bankruptcy scheme. Furniture, where the primary use of the furniture is for the home, may be exempted up to a certain amount. Similarly, jewelry, and tools of a profession or trade may be exempted up to a certain dollar amount.
Beyond the aforementioned goods, a wildcard exists which will allow an exemption up to a certain dollar amount for a single item of the debtor’s choice not otherwise exempted under the Massachusetts scheme. There is also an unused homestead dollar amount that can be applied to specific property. Making a choice to use the Massachusetts bankruptcy exemption scheme is typically elected by filers with significant home equity which that filer wishes to preserve.
The Federal Bankruptcy Exemption Scheme
For filers choosing to petition for bankruptcy under the federal exemption scheme, it will be immediately apparent that the federal scheme is not weighted in favor of debtors with a large amount of equity in a primary residence; the exemption for a primary residence under the federal scheme is under $25,000. Similarly, the exemption for a motor vehicle under the federal bankruptcy exemption scheme is about half that allowed under Massachusetts law. Still, household goods, clothing, jewelry, furniture, and the wildcard and unused homestead exemptions are higher that that of the Massachusetts bankruptcy exemption scheme. Choosing the federal bankruptcy exemption scheme is a strategy that is typically employed by filers who do not have significant home equity and who do have household goods, jewelry, and other property which would yield higher exemption amounts under the federal scheme.
It ought to be clear that filing for bankruptcy offers multiple choices: which chapter to file under, which exemption scheme to choose, understanding what debt cannot be discharged in bankruptcy, and more. An equally important choice is that of the attorney which will represent your interests in the initial petition filing stage, as well as for any other matters which may arise during the process.
See my article, “Explanations of Bankruptcy and Frequently Asked Questions” for more information, or a revised version of this article.
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