Bankruptcy Exemptions in DC

Filing for bankruptcy in DC proceeds in the same way as other bankruptcy cases throughout the United States since bankruptcy generally is controlled by federal law. The main exception relates to which property of the debtor is protected in bankruptcy, and that is determined by the law of the jurisdiction.

Note that DC bankruptcy law is unique with respect to exemptions. DC has taken advantage of the federal law authorizing each jurisdiction to permit its debtors the option of choosing exemptions under federal bankruptcy exemptions law, or DC bankruptcy exemptions law. The locations for filing bankruptcy generally are determined by the federal court district in which the debtor resides.

Chapter 7 Bankruptcy in DC: Exemptions

Persons filing bankruptcy in DC have a right to protect some property and have the option of selecting from either the federal or DC exemption schedules (but not both). The most important DC bankruptcy law exemptions are as follows:

Federal bankruptcy exemptions: (Current as of December 2, 2010. Note: Indexed annually.)

  1. $11,525 in total, and $550 per item, of the value of animals, crops, clothing, furniture, appliances, books, household goods, and musical instruments. As a practical matter, trustees in DC never ask for the turnover of any of the debtor’s clothing (unless you have one of Elvis’ original scarves), furniture (unless you have valuable antiques that can easily be sold and converted to cash), books (unless collector’s editions), appliances, household goods or musical instruments (unless your violin is a Stradivarius). Unless you breed and sell animals for a living, the trustee will not be interested in Fido, either. If you may have an issue regarding protecting your “crops” in DC, call me. I get a kick out of off-beat cases with one-of-a-kind issues.

  2. $21,625 in value of compensation for personal injury.

  3. Compensation for wrongful death, lost wages and life insurance proceeds.

  4. Federally-qualified retirement plans, such as 401Ks.

  5. IRAs (up to a maximum of $1,171,650).

  6. $1,450 in value of personal jewelry.

  7. $21,625 of value of either a debtor’s or dependent’s interest in a residence.

  8. $1,150, plus up to $10,825 of unused value from the residence exemption (above) can be used to protect additional real estate or personal property.

  9. $2,175 in value of the debtor’s or the debtor’s dependent’s tools used in the performance of a trade.

  10. $3,450 of the value of an interest in a car. This exemption, and the other general exemptions for real or personal property above, often are used together to protect the home and belongings of the typical debtor, including cars. The exemption is applicable to the equity (profit) in the car. If the loan on the car exceeds its value, it’s “underwater” and will be of no interest to a trustee in DC. If, on the other hand, the value of the car, and other property, exceeds the value of the loans (also known as the “unencumbered value” or “unprotected equity”), there is another tactic available. With the consent of the trustee, the debtor can offer to “buy the equity” – pay the trustee the amount of unprotected equity and, in that way, keep the vehicle. Of course, to keep the car, you also must continue to pay the lender’s loan on the car if it’s financed, and probably reaffirm the debt.

DC bankruptcy exemptions:

  1. Real property of the debtor when used as a residence, regardless of whether held as a “joint tenancy by the entirety” or a single person. Note, however, that there may be an upper limit of $146,450 in equity set by federal law, when the property has been acquired within 1,215 days (about 3 1/3 years) before the bankruptcy filing. This federal law “cap” came into the law as a result of bankruptcy law changes in 2005. Generally, it was targeted at wealthy persons who had been able to evade creditors and judgments by liquidating assets and using the money to buy an expensive home in states, like Florida, that have no limit on the value of this exemption. Afterwards, they would file for bankruptcy.

  2. $2,575 of value of a car.

  3. $8,625 in total, and $425 per item, of the value of personal and household goods.

  4. $8,075 of unused value from the residence exemption (above), plus $850 per item, can be used to protect additional real estate or personal property.

  5. $1,625 of value of books, tools and supplies used by the debtor in a trade. This exemption is intended to aid self-employed persons continue to earn a living with the tools they need.

  6. $400 of family photos and books.

  7. Federally-qualified retirement plans, such as 401Ks.

  8. Compensation for personal injury.

  9. $300 of the value of tools of a professional or artist.

Under prior law, as a rule of thumb, experienced DC bankruptcy attorneys would advise debtors to choose the DC bankruptcy exemptions only when the person had a marital home that had equity. Only the DC exemptions provided protection for a home owned as a joint tenancy by the entirety from creditors of only one spouse (but not joint creditors). Otherwise, the federal bankruptcy exemptions were chosen because they were significantly more generous.

That advice changed in 2000, when DC lawmakers increased the amounts available for exemption under DC law to bring them more in line with the federal bankruptcy exemptions. Now, the decision about which exemptions to use, becomes one that must be tailored to the individual client. For example, a client expecting a very personal injury award would probably be better off choosing the DC schedule since the personal injury award is completely exempt.

NOTE: The DC bankruptcy exemptions list above is NOT complete. It includes only the most common exemptions. There are traps for the unwary. For example, under the new bankruptcy law you must qualify to use the exemptions of the state in which you reside, generally it’s a two-year residency minimum. Another example of a potential hazard is selling or transferring property shortly before the filing. The transaction can be reversed by the trustee and can also result in the court denying you a discharge of your debts. Once a Chapter 7 bankruptcy case is filed, you can dismiss the case only with the approval of the judge who, generally, will not permit dismissal if he or she finds you have property that can be sold to pay creditors. Consult only experienced DC bankruptcy lawyers to plan your specific case.

Chapter 13 Bankruptcy in DC: Exemptions

When filing for Chapter 13 bankruptcy in DC, bankruptcy exemptions are of less concern. So long as the debtor proposes to make total installment payments in the Chapter 13 plan equivalent to what creditors would have obtained in a liquidation of all of the debtor’s unprotected property in a Chapter 7 bankruptcy, the debtor’s property is fully protected.

Bankruptcy Court For DC

In DC, where this law firm files cases, the federal bankruptcy court that covers residents of the District of Columbia is the following:

U.S. Bankruptcy Court for the District of Columbia
333 Constitution Avenue, NW
Washington, DC 20001