The purpose of bankruptcy is, of course, to obtain a fresh start in life. Naturally, most folks would not receive that fresh start if they lost all of their property when filing bankruptcy.
The law provides numerous exemptions that allow people filing bankruptcy to shield and keep the property they own. Nebraska bankruptcy filers are usually allowed to exempt, or shield and keep, the vast majority, if not all, of their personal property, cash, and real estate when they file a bankruptcy.
While reasonable and modest vehicles, homes, tax refunds, household goods, and clothing are generally exempt under Nebraska bankruptcy law, unlimited exemptions are not available. Although a common misconception, not everyone filing bankruptcy is allowed to keep their car. For example, a person could not own a $50,000 Corvette and file bankruptcy without either losing the Corvette or paying a large amount of money to the Trustee to keep the property.
Most individuals considering bankruptcy do not own lavish homes, luxury automobiles, or new furniture. Typically, Nebraska's rather liberal exemptions provide more than enough protection to keep what property you may own at the time of filing.
Let's review some of the specific exemptions so you have an idea what property you can keep when you file for bankruptcy.
Work Vehicle Exemption
In Nebraska, each individual filing a bankruptcy (both the husband and wife in a joint case) is allowed to exempt and keep equity of $2,400 in a vehicle used to drive to and from work. Does this mean that a person can only keep a vehicle worth $2,400? No, exemptions only apply to equity.
Equity is determined by how much the vehicle is worth on the market (usually determined through a Kelley Blue Book "private sale", value), minus how much is owed on that vehicle. For example, if someone has a pickup worth $10,000, but owes $8,000 to the bank on that vehicle loan, that person has $2,000 in equity in the vehicle. Because there is only $2,000 in equity, ($400 less than the maximum allowed - $2,400), this person's vehicle would be considered exempt, and he/she would be able to keep that vehicle, as long as that person drives the vehicle to work, or is actively seeking a job having only been unemployed for approximately 6 to 9 months.
Tools of Trade Exemption
As the name implies, this exemption applies to "tools" used by the debtor for his or her work. A contractor or mechanic, for example, can claim this exemption for tools used for work. The term "tools" has a broad definition by law, and can even apply to a horse, saddle, and tack if you're employed as a ranch hand and are required to ride a horse.
The value of this exemption is also $2,400 in equity. Because this exemption is combined with the work vehicle exemption, the combination of these two exemptions cannot exceed $2,400 in equity. For example, if a contractor owns a pickup worth $1,500, a work utility trailer worth $500, and $400 worth of tools, he would be allowed to exempt all of this property ($2,400 exemption less $1,500 pickup work vehicle, and $500 utility trailer and $400 tools as "tools of trade").
General Personal Property Exemption
This exemption can be applied to any personal property item, which refers to all property except real estate. That is why it's called a "wildcard" exemption. It can be used to exempt everything from money in the bank to money in mutual funds, cash, guns, boats, or that portion of a person's tax refund that is not from an earned income credit.
The value of this exemption is $2,500 ($5,000 for joint husband and wife filers). In addition, this exemption may be applied to excess equity in another form of personal property under its own exemption. For example, excess equity in a vehicle, beyond the $2,400 exemption. If your work vehicle is valued at $3,000 and has no loan against it, you could use $600 of your "wildcard exemption" to make up the exemption difference needed.
Another very important exemption is the homestead exemption. In Nebraska, people who are married, have children living with them, or age 65 or older, are allowed to exempt and keep, $60,000 in equity in a home in which they live.
Once again, we are only concerned with exempting the equity a person has in a home. For example, if a person filing bankruptcy has a $120,000 home, is current on the payments, and owes $80,000 to the bank on the home, that person can keep their home when filing bankruptcy. Why? Because the $60,000 exemption exceeds their equity ($120,000 value less $80,000 loan = $40,000 equity).
Social Security Exemption
If someone receives Social Security Disability checks or money from other government sources (Social Security, veterans benefits, unemployment compensation), then that money is 100% exempt. If part of your money is from these sources, please discuss where to deposit this money with your Nebraska bankruptcy attorney. When treated correctly, money from these sources is 100% exempt.
For example, a person filing bankruptcy could have several thousand dollars in the bank from Social Security and shield all of that money, so long as it is not commingled with money from another source.
Household Furniture and Appliances Exemption
Personal property that is commonly used in any home is exempt up to the amount of $1,500 per bankruptcy filer. This means that each person filing bankruptcy can exempt $1,500 in goods and furnishings that are convenient or useful in a person's home. Items such as household appliances, tools used around the house, one shotgun and one handgun per individual, furniture, mowers, and snowblowers would fit within this category.
Earned Income Credit Tax Refund Exemption
This exemption can be used to shield and keep all of your tax refund designated as an earned income credit. Part, or all, of your "wildcard exemption" may be used to protect the remainder of your tax refund.
Injury Settlement Exemption
Any settlement proceeds which you might receive in an injury case (personal injury or workman's compensation) are 100% exempt. These funds must, however, be deposited in a segregated account to remain exempt.
There are numerous other exemptions, but those described above are probably the most common ones. In some cases, special steps must be taken to protect and claim an exemption. We advise that you review your circumstances with a qualified Nebraska bankruptcy attorney.
Should you have any questions about whether or not you can keep an item of personal property upon filing bankruptcy, please do not hesitate to contact our law office. Our lawyers and staff have over 50 years combined experience in debtor/creditor work and we personally look forward to helping you.