Exempt property is property which is not part of the bankruptcy estate. In other words, once you have filed for bankruptcy and the petition in bankruptcy is accepted, any property that is allowed to be considered as exempt can be kept by the debtor.
To determine which property can be counted as exempt, the bankruptcy petitioner must first decide which bankruptcy scheme to use – either the federal or state exemption scheme. This article will examine some of the reasons that a person filing for bankruptcy in Massachusetts might choose either exemption scheme.
The State Exemption Scheme – Massachusetts
Protecting the Primary Residence – The Home
Perhaps the most important exemption that a bankruptcy filer in Massachusetts can take is the homestead exemption. For a very small fee, a Massachusetts resident can file for a homestead exemption. Doing so exempts up to $500,000 of equity in the primary residence. Even without filing for the official exemption, a Massachusetts resident qualifies for the automatic $125,000 exemption in home equity in a primary residence.
Protecting a Motor Vehicle
Exemptions up to $7,500 can be taken in a motor vehicle (more if the bankruptcy filer is disabled or is elderly). In addition to the exemption for a motor vehicle, furniture if primarily used for the home can be exempted up to a certain dollar amount. Jewelry, tools for a trade or profession can also be exempt up to a certain dollar value.
Wildcard
Up to a certain value of other goods can be exempt, this wildcard exemption is allowed for a single item of the choice of the debtor. Often, the choice to use the Massachusetts exemption is driven by a debtor with significant home equity.
The Federal Bankruptcy Exemption Scheme
The Primary Residence
The federal bankruptcy exemption scheme is not the ideal scheme for someone with a large amount of equity in the primary home. Instead, under the federal bankruptcy scheme, the primary residence exemption is $25,000 in 2021.
The Motor Vehicle and Other Exemptions
The exemption for a motor vehicle under the federal scheme is about 1/2 that of the exemption under the state exemption scheme. On the plus side, household goods, jewelry, furniture, clothing and the wildcard and unused exemptions are higher that that of the State exemption scheme.
The Federal scheme in bankruptcy is ideal, typically, for bankruptcy filers without significant home equity and with other property that might provide higher exemption amounts than that allowed in the federal exemption scheme.
The choice as two which bankruptcy scheme to choose can be complicated. The best way to arrive at the answer is to contact our office and we will calculate the difference between the two to offer the most beneficial option for your individual circumstances.
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