When contemplating filing a bankruptcy petition, residents of the Olympic Peninsula and the Seattle area often worry that bankruptcy will cost them valuable assets, such as their home their car, retirement plans and other significant assets. Both Congress and the Washington legislature have considered this fear against the backdrop of the basic policy of bankruptcy: giving people a fresh financial start.
A fresh start would mean little if the bankruptcy proceeding stripped a person of all assets. For this reason, both the federal Bankruptcy Code and Washington statutes give a person the option of declaring certain assets exempt from the claims of creditors. The two lists of exemptions are different, and a person must usually choose exemptions from one list or the other; However, the Washington exemption statute permits a person to choose certain exemptions from both lists.
Real estate exemptions
Perhaps the most important exemption is the family home. The Bankruptcy Code permits a petitioner to declare real property or a mobile home exempt from claims of creditors up to $40,000 of net equity. This exemption also permits a person to exempt household goods, furniture, and home and yard equipment exempt up to a limit of $2,700.
Certain items of personal property can also be declared to be exempt. Clothing up to $1,000 in clothing. One motor vehicle for each petitioner can be declared exempt up to $2,500 per person. Professionally prescribed health aids can be declared exempt.
Insurance benefits and wages
IRAs, ERISA benefit plans and public employee pensions may also be added to the list of exemptions. Earned but unpaid wages may be declared exempt up to 75% of the total (although the bankruptcy judge may allow a higher percentage depending upon the petitioner’s financial situation.
Federal add-on exemptions
Washington residents may add the value of various public employment retirement plans, including railroad workers and Social Security benefits. Veteran’s benefits are also exempt.
A knowledgeable bankruptcy attorney can provide more detailed advice on available exemptions. The process of choosing exemptions can be a difficult but important initial step in filing a bankruptcy petition.