Exemptions under Bankruptcy Laws

You asked for a comparison of exemptions under federal, Connecticut, and other northeastern state's bankruptcy law. The discussion of federal law focuses on Chapter 7 of the Bankruptcy Code, which is the most commonly used option for individuals. This memo treats the New England states, New York, New Jersey, and Pennsylvania as the northeast.

Federal law and the laws of each state list the items that are exempt from bankruptcy. Federal law allows the individual filing for bankruptcy to choose either the federal exemptions, if the state allows this choice, or the state exemptions. The federal law allows states to “opt out” of the federal exemptions by specifically prohibiting their residents from choosing them.

The federal law and the laws in Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont provide exemptions for part of the value of the debtor's home. OLR reports 97-R-0940 and 96-R-0480 describe these "homestead exemption" provisions under Connecticut and Massachusetts law in detail. The federal law and all of the states other than Pennsylvania and Rhode Island protect part of the value of the debtor's motor vehicle. The federal law and most of the states protect household goods, furniture, and tools of the trade up to a specified value. The laws vary widely in their caps on the value of property that is protected from bankruptcy. Under federal law, the caps are adjusted periodically to reflect inflation. Finally, the federal law and most of the state laws protect the debtor's right to receive Social Security and other types of benefits, insurance awards, and legal judgments.

The federal law and the law in all of the states except Rhode Island protect part of the debtor's wages from attachment. In all of the remaining states except Massachusetts and Pennsylvania the protection is determined by a formula. Massachusetts protects $125 per week. Pennsylvania protects all of the debtor's wages, so long as they are in his employer's hands.

This memo comprehensively describes the exemptions allowed under federal and Connecticut law. It describes the major exemptions allowed under the laws in the other states. In addition to these major categories of exemptions, each state has its own idiosyncratic exemptions. For example, several states specify the amount of livestock that is exempt from bankruptcy protection.

A chart comparing exemptions as of August 1997 under federal law and the laws of all 50 states can be found online at http://www.abiworld.org/abidata/online/conference97se/cristol.html. The limits under the federal law and the laws of several states have increased since 1997.

Of the states discussed in this memo, Maine, New Hampshire, and New York have opted out of the federal exemptions. In these states, debtors must use the state exemptions. In the remaining states, including Connecticut, debtors can choose the federal or state exemptions. Under the federal law, a debtor must have lived in the state for at least 180 days before filing, or for a longer portion of the 180 days than he lived anywhere else, to benefit from the state exemptions.

The Bankruptcy Reform Act of 1994 established a mechanism for automatic adjusting of certain federal exemptions every three years. The adjustment reflects the change in the consumer price index for the previous three years, rounded up to nearest $25. The U.S. Judicial Conference must publish the new limits in the Federal Register by March 1 of the relevant year.

The federal exemptions listed in the U.S. Code are as follows (the amounts in parentheses reflect the adjustments made as of February 12, 1998):

1. up to $15,000 of the debtor's interest (adjusted to $16,150), in real property or personal property that the debtor uses as a residence, including an interest in a co-op apartment, or in a burial plot for the debtor or for his dependent;

2. the debtor's interest in a motor vehicle, up to $2,400 (adjusted to $2,575) in value;

3. the debtor's interest, for up to $400 (adjusted to $425) per item and $8,000 (adjusted to $8,625) in the aggregate, in household furnishings, household goods, apparel, appliances, books, animals, crops, or musical instruments that are primarily for the personal, family, or household use of the debtor or his dependents;

4. the debtor's aggregate interest, up to $1,000 (adjusted to $1,075) in jewelry held for his or his dependents' personal, family, or household use;

5. the debtor's interest in any property, up to $800 (adjusted to $850) plus up to $7,500 (adjusted to $8,075) of any unused amount of the residence or burial plot exemption described above;

6. up to $1,500 (adjusted to $1,650) in the aggregate in any implements, professional books, or tools of the debtor's or his dependent's trade;

7. any unmatured life insurance contract owned by the debtor, other than a credit life insurance contract;

8. up to $8,000 (adjusted to $8,625) in accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the debtor under which he or his dependent is the insured; and

9. professionally prescribed health aids for the debtor or his dependent.

The law also exempts the debtor's right to receive various benefits from bankruptcy. These are the right to receive (a) a social security benefit, unemployment compensation, local welfare benefit, or veteran's benefits; (b) disability, illness, or unemployment benefits; (c) alimony, support, or separate maintenance, to the extent reasonably necessary; or (d) a payment under a stock bonus, pension, profit-sharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the debtor's or his dependents' support, with certain exceptions.

Finally, the law exempts the debtor's right to receive, or property that can be traced to:

1. an award under a crime victim's reparation law;

2. a payment for the wrongful death of someone on whom the debtor was dependent, to the extent reasonably necessary to support the debtor and his dependents;

3. a payment under a life insurance contract that insured the life of someone on whom the debtor was dependent, to the extent reasonably necessary to support the debtor and his dependents;

4. a payment of up to $15,000 (adjusted to $16,150) for personal bodily injury (not including pain and suffering) or compensation for actual pecuniary loss, of the debtor or of someone on whom the debtor is dependent; or

5. a payment in compensation for loss of future earnings of the debtor or of someone on whom the debtor is or was dependent, to the extent reasonably necessary to support the debtor and his dependents.

OLR report 98-R-0905 describes the rights of individuals who file for bankruptcy under chapter 7.

Since Connecticut has not opted out of the federal exemptions, people filing for bankruptcy here can choose either the state or federal exemptions. Connecticut law exempts from bankruptcy the homestead of an individual up to a value of $75,000. If a couple jointly own a home and each declares bankruptcy, each can assert the exemption. The homestead is owner-occupied real property or a mobile home that is used as the debtor's a primary residence.

1. one motor vehicle worth up to $1,500 (fair market value minus all liens and security interests on it);

2. necessary apparel, bedding, foodstuffs, household furniture, and appliances;

3. tools, books, instruments, farm animals and livestock feed that the individual needs for his occupation, profession, or farming operation;

4. a burial plot for the individual and his immediate family;

5. welfare payments and wages the welfare recipient earns under an incentive earnings or similar program;

6. health and disability insurance payments;

7. health aids the individual needs to work or sustain health;

9. alimony and support, other than child support, but only to the extent that wages are exempt from execution;

11. arms and military equipment, uniforms and musical instruments owned by someone in the United States armed forces or militia;

12. wedding and engagement rings;

13. one residential utility deposit and one residential security deposit;

14. an individual's assets or interests in a retirement, Keogh, Individual Retirement Account, or similar plan or arrangement;

15. an award under a crime reparations act;

16. benefits allowed by any association of persons in this state for the support of its members who are incapacitated by sickness or infirmity;

17. money due to the individual from an insurance company on any insurance policy issued on exempt property, to the same extent that the property was exempt;

18. an interest in any property that does not exceed $1,000 in value;

19. an interest of up to $4,000 in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract the individual owns under which he, or someone whose dependent he is, is insured; and

20. irrevocable transfers of money to an account held by a bona fide licensed nonprofit debt adjuster for the benefit of the individual's creditors

In Maine, the standard homestead exemption is $12,500. However, if minor dependents live with the debtor, the limit is $25,000 and if the debtor is 60 years old or older or is disabled, the limit is $60,000. Up to $6,000 of an unused homestead exemption can be used to protect other specified types of property.

1. up to $2,500 in one motor vehicle;

2. up to $200 in clothing, furniture, and similar items;

3. up to $750 in jewelry, plus an engagement and wedding ring;

4. up to $5,000 in tools of the trade (including books);

5. up to a $4,000 interest in any unmatured life insurance policy, where the debtor or his dependent is the insured; and

6. up to $400 in any other type of property.

Maine's law generally parallels federal law in providing protection from bankruptcy for (1) rights to Social Security and various other types of benefits and pensions and (2) rights to receive, or property traceable to, legal awards and insurance benefits.

In Massachusetts, the standard homestead exemption covers up to $100,000 of the debtor's primary family residence. If the debtor is 62 or older or disabled, the exemption is $200,000.

1. an automobile's value up to $700;

2. furniture up to $3,000, plus beds and bedding;

3. tools of the trade up to $500;

4. provisions for use of the debtor's family up to $300;

5. money for residential rent up to $200 per month; and

6. up to $125 in bank accounts.

In New Hampshire, the homestead exemption is $30,000. Among other things, the state also exempts:

It also exempts interests in any federally authorized tax-exempt retirement plan.

New Jersey does not have a homestead exemption. It does exempt up to $1,000 in personal property plus all clothes. It exempts certain types of pensions and other benefits, although this provision is substantially narrower than that of the federal law.

New York's homestead exemption is up to $10,000. If a husband and wife are joint debtors, the maximum exemption is $20,000. The exemption explicitly applies to condominium units, cooperative apartments, and mobile homes. The state also exempts one motor vehicle up to $2,400.

New York's law generally parallels federal law in providing protection from bankruptcy for (1) rights to Social Security and various other types of benefits and pensions and (2) rights to receive, or property traceable to, legal awards, and insurance benefits.

Pennsylvania appears to have the narrowest exemption law of the states discussed in this memo. It has neither a homestead exemption nor exemptions for motor vehicles and most types of personal property. The only types of personal property that are exempt are wearing apparel, bibles, schoolbooks, sewing machines, and military uniforms. The state also exempts various types of pensions, government benefits, and insurance proceeds.

Rhode Island's homestead exemption, which went into effect on January 1, 1999, is $100,000 of the equity of the debtor's primary residence. Rhode Island also exempts, among other things:

Vermont's homestead exemption is up to $75,000 of the value of a dwelling, outbuildings, and the land used in connection with them owned and used by the debtor as a homestead. Vermont also exempts the following items from bankruptcy:

1. up to $2,500 in interest in motor vehicles;

2. up to $5,000 in interest in professional or trade books or tools;

3. up to $2,500 in interest in goods held for personal use of the debtor or his dependents;

4. growing crops worth up to $5,000;

5. up to $500 in jewelry, plus a wedding ring; and

6. $400 in interest in any property, plus up to $7,000 of the unused amounts under the previous categories.

Vermont also excludes a number of specific items. These include appliances such as a refrigerator, furnace, and water heater; a specified amount of fuel; and various agricultural goods (such as three swarms of bees with the honey they produce.)

Vermont exempts several forms of investments from bankruptcy. These include: (1) up to $700 in bank deposits, (2) up to $5,000 in various forms of retirement accounts, subject to several restrictions, and (3) unmatured life insurance policies, other than credit life insurance contracts.

Finally, the state exempts the debtor's right to receive certain benefits from bankruptcy, to the extent they are reasonably necessary for the support of the debtor and his dependents. These exemptions cover the rights to Social Security and various other governmental benefits; alimony and support payments; and payments under pension, annuity, and similar plans, among others.


December 21, 1999		99-R-1322
EXEMPTIONS UNDER BANKRUPTCY LAWS

By: Kevin E. McCarthy, Principal Analyst