Florida Bankruptcy Exemption Laws

What are Bankruptcy Exemptions?

Every state has laws that designate certain types of property (your home, some personal possessions, tools of your trade) that are off-limits to "unsecured" creditors -- that is, creditors who do not have a lien on your property. Credit card debt and medical bills are the two the most common types of unsecured debt (unless you have a special 'secured' credit card).

Unsecured creditors cannot force you to sell your exempt property to pay off the debt. Even if the creditor goes to court wins a court judgment against you, and takes steps to attach a 'judgment lien' to your property, you are still entitled to your exemption amount before any sale proceeds are distributed to the unsecured creditor. (However, some debts, like child support, may be an exception.)

If you eventually do sell your property voluntarily, the creditor has a right to have its lien paid from the sale proceeds before you receive anything. As a practical matter, most people facing bankruptcy only own property that is exempt, and have no interest in selling what they have. If all of your property is protected by exemption laws, you are said to be "judgment proof" -- whether or not you file for bankruptcy.

If you do file for bankruptcy and all your property is exempt, your case is known as a "no asset" bankruptcy--which really means you have no non-exempt assets.

In bankruptcy, a court official called the "bankruptcy trustee" represents the rights of all unsecured creditors. The trustee can assert whatever rights the creditors would have if they had a court judgment against you.

Another important thing to remember about exemptions is that it only protects the "equity" in your property. That is the difference between the value of the property, and what you owe to secured creditors.

If you contractually agreed to pledge your property as collateral for a debt, this property is known as "secured property," and the debt is called a "secured" debt, and the person you owe is a "secured creditor" and they have a "security interest" in the property. If the debt was incurred to purchase the property itself (e.g. a car loan or first mortgage), the creditor is said to have a "purchase money security interest" (PMSI). Exemption laws offer no protection against such contractual agreements that give the creditor a PMSI.

EXAMPLE:

If you owe $10,000 on a $12,000 car, you have only $2,000 in equity. If your state has at least a $2,000 exemption for motor vehicles, that will be enough to protect the car in bankruptcy --(but you'll still need to make the car payments to the secured creditor.

On the other hand, if you own the vehicle free and clear, then your equity is the full value of the vehicle, and a $2,000 exemption would not enough to protect it. The trustee would force the sale of the car, you would get your exemption amount, and the trustee would get the rest of the proceeds to distribute to the unsecured creditors.

FOR MORE INFORMATION:

This topic is covered in more detail in Chapters 3, 4 and 5 of How to File for Chapter 7 Bankruptcy, 15th Edition, 2008.

Buy now: Nolo (publisher)

Common Exceptions to Exemptions

Child support

Taxes

Secured claim holders

Special Rules for Retirement Accounts

Under a new provision of the bankruptcy law, enacted in October 2005, virtually all types of pension and retirement accounts recognized by the IRS are completely exempt regardless of what state you live in.

This provision exempts "retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under Sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code."

This list covers 401(k)s, 403(b)s, profit-sharing and money purchase plans, IRAs (including SEP and SIMPLE plans), as well as defined-benefit plans.

The exemption applies whether you rely on the list of federal bankruptcy exemptions (11 U.S.C. 522(d)(12)) or the exemption laws of your own state (See 11 U.S.C. 522(b)(3)(C)). Section 522(b)(4) spells out the specific requirements for qualifying under these provisions.

These exemptions are unlimited, except for Roth and traditional IRAs, which are capped at an aggregate IRA account value of $1 million per individual (adjusted every three years for inflation). (See 11 U.S.C. 522(n))

SEP and SIMPLE IRAs, along with all other types of non-IRA retirement accounts such as 401(k)s and 403(b)s, are completely exempt.

More Info

For more details, see an excellent summary of how retirement accounts are treated under the new bankruptcy law from the August 2005 issue of the Journal of Financial Planning.

References to the Internal Revenue Code

The new bankruptcy law exemption for retirement accounts includes all funds "exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986."
Those sections cover:

• 401 (a qualified pension, profit-sharing and stock bonus plan created under a trust established by an employer for the exclusive benefit of employees or beneficiaries)
• 403 (qualified annuity plans that are established by an employer for an employee under IRC 404(a)(2) or 501(c)(3))
• 408 (IRAs)
• 408A (Roth IRAs)
• 414 (other retirement plan for controlled groups of employees such as churches, partnerships, proprietorships, and governments)
• 457 (eligible deferred compensation plans) or
• 501(a) (retirement plans established and maintained by tax-exempt organizations, e.g. churches, nonprofit organizations)

Special 'exclusion' of education accounts

Under the new bankruptcy law, education savings accounts or education IRAs created under sections 529 or 530 of the Internal Revenue Code are 'excluded' from the bankruptcy estate (not quite the same as 'exempt' but with the same result).

See, 11 U.S.C. 541(b)(6), (529 Education Tuition Plans) and 11 U.S.C. 541(b)(5) (530 Coverdell IRAS)

NOTE: Even though these education accounts are excluded from the bankruptcy estate, you still must list them on your forms (See section (11 U.S.C. 521(c).)

Also excluded are:

• benefits governed by ERISA (Click here for government info on ERISA and pensions.)
• 414(d)(governmental retirement plans),
• IRC 457 (deferred compensation)
• 403(b)( tax deferred annuity plan including church plans, etc)

See 11 U.S.C. 541(b)(7)

Insurance Exemption Glossary

Insurance exemptions use a lingo all their own and some familiarity with the jargon is essential to understanding what is exempt.

Three kinds of insurance assets

You may own a property interest in life insurance in three different ways: you may own an unmatured life insurance contract (with no cash value - e.g. a term life insurance policy), you may own cash value in an unmatured life insurance policy (e.g. a whole life policy), and you may, as a beneficiary, be entitled to proceeds from a matured life insurance policy.

"Matured" simply means that the conditions of the policy have have been met. A matured policy is paying proceeds to the beneficiary of the insured.

An unmatured policy is not paying proceeds, but, can still have a current value in two ways:

1. In the case of a "term life" policy, the continued existence of the contract itself can be said to have value, even if it cannot be converted to cash.

2. Other kinds of of policies can have accumulate value over time, and that value that can be borrowed against, or turned into cash if the policy is 'surrendered' (see "avails" below).

Reading insurance exemptions

Many states have unlimited exemptions for insurance proceeds. However, most states offer only limited exemptions for the cash or loan value of an unmatured policy.

A few states, however, offer unlimited exemptions for the cash value of such policies, or policies offered by 'fraternal benefit societies.' In such states, life insurance is often an important component of an overall asset protection strategy.

Other terms

Avails: Any amount available to the owner of an insurance policy other than the actual proceeds of the policy. Avails include dividend payments, interest, cash or surrender value (the money you'd get if you sold your policy back to the insurance company) and loan value (the amount of cash you can borrow against the policy).

Other Listings of California Exemptions on the Internet

The following websites offer information on California exemptions, but be careful to check whether the information is up to date. Here are a few generally reliable, resources, which may or may not be up to date.

AssetProtectionBook.com A site geared toward the very rich with millions n assets, looking for ways to shield them. Good discussion of using insurance as an exemption. Extensive state by state review of exemptions. Site is updated "when they get around to it" -- no guarantees of currency.

CCH Business Owner's Toolkit Generally, a good reference site for lawyers and small business owners. Exemption summaries do not have citations, nor can you tell when the information was last updated. Exemptions are not up-to-date for several states.

If you have recently moved

ExemptionsExpress offers a handy 50 state table and analysis to deal with the problem of how to comply with potentially conflicting state and federal banrkruptcy exemption laws if you have recently moved from one state to another.

Other Places to research California Law

The Library of Congress offers a directory of state resources for each state

Eliminating judicial liens on exempt property

If there is a lien on your property as a result of a court judgment against you, you may have the right to remove it if it "impairs" an exemption on the property. That is, if the equity in your property is protected by an exemption, you can get the judicial lien on it removed by the bankruptcy court as another element of the "fresh start" that bankruptcy is designed to provide.

If there are judicial liens on your property, be sure to determine which ones can be eliminated through the "lien avoidance" procedure. Some liens cannot be removed however, including a judicial lien that secures a domestic support obligation. 11 U.S.C.A. § 522(f)(1)(A).

For more information on lien avoidance, when it's available and step by step procedural guidance how to do it, see How to File for Chapter 7 Bankruptcy, 14th Edition, by Elias, Renauer & Leonard. Buy now: Nolo :: Powell's :: Amazon

Note that some judicial district web sites have links for those who provide free legal assistance to debtors who need representation in a lien avoidance proceeding.

Dealing with Secured Auto Loans in Bankruptcy

Bankruptcy offers the option of keeping your secured property by immediately paying it's current replacement value of the object rather than the loan amount. This can be an attractive option for those with auto loans where the value of the car has most likely depreciated faster than the loan balance. However, coming up with the full amount in cash can be difficult if not impossible. In the past few years, a few alternatives have arisen.

Vendors of "Redemption Financing"

The companies listed below specializes in making auto loans to bankrupt debtors seeking the bankruptcy option of "redemption" of their vehicle, whereby the debtor keeps the car by immediately paying the vehicle's current market value (replacement value) rather than the full loan amount over time. These companies will finance a new auto loan (generally through a bank) to produce the cash to pay the redemption amount to your original creditor, and then you pay the redemption amount to the new lender over time. Of course, if you miss payments under the new loan, you'll still lose the vehicle, but at least your monthly payments should be smaller. The new lender takes ownership of the lien on your car. Debtors must have an otherwise good credit history to qualify, and the car must be in good enough condition (i.e. worth enough) to protect the bank's loan.

722 Redemption Financing (via US Bank)

This company specializes in making auto loans (through US Bank) to debtors seeking the option of "redemption" available to those in bankruptcy whereby the debtor can keep a car by paying the current market value (replacement value) of the automobile rather than the loan amount. The company will finance redemption of your existing automobile, or arrange financing for a replacement automobile. Debtors must have an otherwise good credit history to qualify. See the site for more information.

The site has special home pages for debtors, debtors attorneys, creditors, creditors attorneys, bankruptcy trustees, auto dealers.

Of course, if you can't make the payments on this revised amount loan, you'll still lose the car, just to a different lender. So this option is only a solution if you can make the payments on the reduced amount.

FreshStart Loan Corporation

Fresh Start Loan Corporation, a Delaware Corporation, dba Redemption Financial Services™ is a duly licensed Consumer Loan Company that began its operations in 1999. The company is now licensed in 12 states*, with licenses pending in 6 states** as of January, 2005.

Paul D. Kirschner, President, General Counsel, Fresh Start Loan Corporation . All employees of Fresh Start Loan Corporation, its loan officers, loan processors, customer service and intake employees are located at our headquarters in Gig Harbor, Washington.

* Licensed in Alaska, Alabama, Arizona, Georgia, Florida, Hawaii, Indiana, Kentucky, Missouri, Oregon, Utah and Washington
** Licenses Pending in California, Illinois, Mississippi, New York, Nevada and Ohio

Home Valuation tools

Zillow.com Recommended! Wonderful tool that shows home values in your neighborhood. This link will take you to a listing of the average home value in your zip code. Just add your street address to get an estimate of the value of your house, and all others in your neighborhood. (Note: Does not serve all areas, and valuations are imperfect estimates only.)

Yahoo Real Estate offers comparable home sales in your neighborhood.

California System 2 Exemptions

• Real or personal property, including co-op, used as residence to $20,725; unused portion of homestead may be applied to any property
  Cal. Civ. Proc. Code § 703.140 (b)(1)
  In re Talmiadge, 832 F.2d 1120 (9th Cir 1987)
  

California System 1 Exemptions

• CA Exemptions
• Disability or health benefits
  Cal. Civ. Proc. Code § 704.130
  
• May file homestead declaration to protect exemption amount from attachment of judicial liens and to protect proceeds of voluntary sale for 6 months.
  Cal. Civ. Proc. Code § 704.920
  Cal. Civ. Proc. Code § 704.950
  Cal. Civ. Proc. Code § 704.960
  
• Real or personal property you occupy including mobile home, boat, stock cooperative, community apartment, planned development, or condo to $50,000 if single & not disabled; $75,000 for families if no other member has a homestead (if only one spouse files, may exempt one-half of amount if home held as community property and all of amount if home held as tenants in common); $150,000 if 65 or older, or physically or mentally disabled; $150,000 if 55 or older, single, & with gross annual income under $15,000 or married & gross annual income under $20,000 & creditors seek to force the sale of your home; forced sale proceeds received exempt for 6 months after; separated but married debtor may claim homestead in community property still occupied by other spouse. (Husband & wife may not double)
  Cal. Civ. Proc. Code § 704.710
  Cal. Civ. Proc. Code § 704.720
  Cal. Civ. Proc. Code § 704.730
  In re McFall, 112 B.R. 336 (9th Cir. B.A.P. 1990)
  

California System 2 Exemptions

• Life insurance proceeds needed for support of family
  Cal. Civ. Proc. Code § 703.140 (b)(11)(C)
  
• Unmatured life insurance contract accrued avails to $11,075
  Cal. Civ. Proc. Code § 703.140 (b)(8)
  
• Unmatured life insurance policy other than credit insurance
  Cal. Civ. Proc. Code § 703.140 (b)(7)
  
• Disability benefits
  Cal. Civ. Proc. Code § 703.140 (b)(10)(C)
  

California System 1 Exemptions

• Fidelity bonds
  Cal. Lab. Code § 404
  
• Fraternal Benefit Society benefits
  Cal. Civ. Proc. Code § 704.170
  
• Fraternal unemployment benefits
  Cal. Civ. Proc. Code § 704.120
  
• Homeowners' insurance proceeds for 6 months after received, to homestead exemption amount
  Cal. Civ. Proc. Code § 704.720 (b)
  
• Life insurance proceeds or avails if clause prohibits proceeds from being used to pay beneficiary's creditors
  Cal. Ins. Code § 10132
  Cal. Ins. Code § 10170
  Cal. Ins. Code § 10171
  
• Matured life insurance benefits needed for support
  Cal. Civ. Proc. Code § 704.100 (c)
  
• Unmatured life insurance policy loan value to $10,775 (husband & wife may double)
  Cal. Civ. Proc. Code § 704.100 (b)
  

California System 2 Exemptions

• Alimony, child support needed for support
  Cal. Civ. Proc. Code § 703.140 (b)(10)(D)
  

California System 1 Exemptions

• Business or professional licenses
  Cal. Civ. Proc. Code § 695.060
  
• Inmates' trust funds to $1,350 (husband and wife may not double)
  Cal. Civ. Proc. Code § 704.090
  
• Property of business partnership
  Cal. Corp. Code § 16501
  Cal. Corp. Code § 16502
  Cal. Corp. Code § 16503
  Cal. Corp. Code § 16504
  

Special Rules for Retirement Accounts

Under a new provision of the bankruptcy law, enacted in October 2005, virtually all types of pension and retirement accounts recognized by the IRS are completely exempt regardless of what state you live in.

This provision exempts"retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under Sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code."

This list covers 401(k)s, 403(b)s, profit-sharing and money purchase plans, IRAs (including SEP and SIMPLE plans), as well as defined-benefit plans.

The exemption applies whether you rely on the list of federal bankruptcy exemptions (11 U.S.C. 522(d)(12)) or the exemption laws of your own state (See 11 U.S.C. 522(b)(3)(C)). Section 522(b)(4) spells out the specific requirements for qualifying under these provisions.

These exemptions are unlimited, except for Roth and traditional IRAs, which are capped at an aggregate IRA account value of $1 million per individual (adjusted every three years for inflation). (See 11 U.S.C. 522(n))

SEP and SIMPLE IRAs, along with all other types of non-IRA retirement accounts such as 401(k)s and 403(b)s, are completely exempt.

More Info

For more details, see an excellent summary of how retirement accounts are treated under the new bankruptcy law from the August 2005 issue of the Journal of Financial Planning.

References to the Internal Revenue Code

The new bankruptcy law exemption for retirement accounts includes all funds "exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986."
Those sections cover:

• 401 (a qualified pension, profit-sharing and stock bonus plan created under a trust established by an employer for the exclusive benefit of employees or beneficiaries)
• 403 (qualified annuity plans that are established by an employer for an employee under IRC 404(a)(2) or 501(c)(3))
• 408 (IRAs)
• 408A (Roth IRAs)
• 414 (other retirement plan for controlled groups of employees such as churches, partnerships, proprietorships, and governments)
• 457 (eligible deferred compensation plans) or
• 501(a) (retirement plans established and maintained by tax-exempt organizations, e.g. churches, nonprofit organizations)

Special 'exclusion' of education accounts

Under the new bankruptcy law, education savings accounts or education IRAs created under sections 529 or 530 of the Internal Revenue Code are 'excluded' from the bankruptcy estate (not quite the same as 'exempt' but with the same result).

See, 11 U.S.C. 541(b)(6), (529 Education Tuition Plans) and 11 U.S.C. 541(b)(5) (530 Coverdell IRAS)

NOTE: Even though these education accounts are excluded from the bankruptcy estate, you still must list them on your forms (See section (11 U.S.C. 521(c).)

Also excluded are:

• benefits governed by ERISA (Click here for government info on ERISA and pension.)
• 414(d)(governmental retirement plans),
• IRC 457 (deferred compensation)
• 403(b)( tax deferred annuity plan including church plans, etc)

See 11 U.S.C. 541(b)(7)

California System 2 Exemptions

• ERISA-qualified benefits, IRAs & Roth IRAs needed for support
  Cal. Civ. Proc. Code § 703.140 (b)(10)(E)
  

California System 1 Exemptions

• Appliances, furnishings, clothing, & food
  Cal. Civ. Proc. Code § 704.020
  
• County employees
  Cal. Gov’t. Code § 31452
  
• County firefighters
  Cal. Gov’t. Code § 32210
  
• County peace officers
  Cal. Gov’t. Code § 31913
  
• Private retirement benefits, including IRAs & Keoghs
  Cal. Civ. Proc. Code § 704.115
  
• Public employees
  Cal. Gov’t. Code § 21255
  
• Public retirement benefits
  Cal. Civ. Proc. Code § 704.110
  

Auto Valuation Tools:

Kelley Blue Book

Edmunds

Both of these websites offer interactive tools to determine the current value of your used car.

California System 2 Exemptions

• Burial plot to $20,725, in lieu of homestead
  Cal. Civ. Proc. Code § 703.140 (b)(1)
  
• Health aids
  Cal. Civ. Proc. Code § 703.140 (b)(9)
  
• Jewelry to $1,350
  Cal. Civ. Proc. Code § 703.140 (b)(4)
  
• Motor Vehicle to $3,300
  Cal. Civ. Proc. Code § 703.140 (b)(2)
  
• Personal injury recoveries to $20,725 ( not to include pain & suffering; pecuniary loss)
  Cal. Civ. Proc. Code § 703.140 (b)(11)(D),(E)
  
• Wrongful death recoveries needed for support
  Cal. Civ. Proc. Code § 703.140 (b)(11)(B)
  
• Animals, crops, appliances, furnishings, household goods, books, musical instruments & clothing to $525 per item
  Cal. Civ. Proc. Code § 703.140 (b)(3)
  

California System 1 Exemptions

• Bank deposits from Social Security Administration to $2,700 ($4,050 for husband and wife); unlimited if SS funds are not commingled with other funds Bank deposits of other public benefits to $1,350 ($2,025 for husband and wife)
  Cal. Civ. Proc. Code § 704.080
  
• Building materials to repair or improve home to $2,700 (husband and wife may not double)
  Cal. Civ. Proc. Code § 704.030
  
• Burial plot
  Cal. Civ. Proc. Code § 704.200
  
• Funds held in escrow
  Cal. Fin. Code § 17410
  
• Health aids
  Cal. Civ. Proc. Code § 704.050
  Cal. Civ. Proc. Code § 703.140 (b)(9)
  Cal. Civ. Proc. Code § 703.150
  
• Homeowners' Association Assessments
  (only exempt from association's creditors)
  
  Cal. Civ. Code § 1366 (c)
  
• Jewelry, heirlooms & art to $6,750 total (husband and wife may not double)
  Cal. Civ. Proc. Code § 704.040
  
• Motor vehicles to $2,550, or $2,550 in auto insurance for loss or damages (husband and wife may not double)
  Cal. Civ. Proc. Code § 704.010
  
• Personal injury & wrongful death causes of action
  Cal. Civ. Proc. Code § 704.140 (a)
  Cal. Civ. Proc. Code § 704.150 (a)
  
• Personal injury & wrongful death recoveries needed for support; if receiving installments, at least 75%
  Cal. Civ. Proc. Code § 704.140 (b),(c),(d)
  Cal. Civ. Proc. Code § 704.150 (b),(c)
  

California System 2 Exemptions

• Public assistance
  Cal. Civ. Proc. Code § 703.140 (b)(10)(A)
  
• Social Security
  Cal. Civ. Proc. Code § 703.140 (b)(10)(A)
  
• Unemployment compensation
  Cal. Civ. Proc. Code § 703.140 (b)(10)(A)
  
• Veterans' benefits
  Cal. Civ. Proc. Code § 703.140 (b)(10)(B)
  
• Crime victims' compensation
  Cal. Civ. Proc. Code § 703.140 (b)(11)(A)
  

California System 1 Exemptions

• Aid to blind, aged, disabled; public assistance
  Cal. Civ. Proc. Code § 704.170
  
• Financial aid to students
  Cal. Civ. Proc. Code § 704.190
  
• Relocation benefits
  Cal. Civ. Proc. Code § 704.180
  
• Unemployment benefits
  Cal. Civ. Proc. Code § 704.120
  
• Union benefits due to labor dispute
  Cal. Civ. Proc. Code § 704.120 (b)(5)
  
• Workers' compensation
  Cal. Civ. Proc. Code § 704.160
  

California System 2 Exemptions

• Implements, books, & tools of trade to $2,075
  Cal. Civ. Proc. Code § 703.140 (b)(6)
  

California System 1 Exemptions

• Commercial vehicle (Vehicle Code § 260) to $4,850 ($9,700 total if used by both spouses in same occupation)
  Cal. Civ. Proc. Code § 704.060
  
• Tools, implements, materials, instruments, uniforms, books, furnishings, & equipment to $6,750 total ($13,475 total if used by both spouses in same occupation);
  Commercial motor vehicle to $4,850 ($9,700 if used by debtor and spouse in same trade)
  Cal. Civ. Proc. Code § 704.060
  

California System 2 Exemptions

• None (use federal non-bankruptcy wage exemption)
  Cal. Civ. Proc. Code § 703.140
  

California System 1 Exemptions

• Minimum 75% of wages paid within 30 days prior to filing
  Cal. Civ. Proc. Code § 704.070
  
• Public employees' vacation credits; if receiving installments, at least 75%
  Cal. Civ. Proc. Code § 704.113
  

California System 2 Exemptions

• Unused portion of homestead or burial exemption of any property
  Cal. Civ. Proc. Code § 703.140 (b)(5)
  
• $1,100 of any property
  Cal. Civ. Proc. Code § 703.140 (b)(5)
  

California System 1 Exemptions

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