Many people are nervous about filing for bankruptcy because they fear losing what little they have left. But the purpose of bankruptcy is not to leave a debtor with nothing. On the contrary, federal and Washington state laws allow a debtor to “exempt” or protect a certain amount of property from creditors and the bankruptcy court.
Federal or Washington Exemptions?
The federal Bankruptcy Code spells out a list of exemptions for all debtors filing for protection under Chapter 7 or Chapter 13. But each individual state can create its own set of bankruptcy exemptions, and decide whether its residents must use the state or have a choice.
Washington falls into the latter category. The debtor has the option of using the state
or federal exemptions when they file for bankruptcy. Keep in mind, this is an either-or choice. You cannot take some exemptions from the federal list and “mix and match” them with items from the state list.
Your Home and Tangible Personal Property
For many people, the most important bankruptcy exemption is their homestead, or primary residence. Washington exempts up to $125,000 in equity in real property or a mobile home. This is significantly more generous than the federal exemption of $23,675.
The other major item of concern for most debtors is their car. Washington exempts a single vehicle up to $3,250 in value or, for a community (couple), two vehicles worth up to $6,500.
Other tangible personal property exemptions in Washington include:
- All everyday “wearing apparel”;
- No more than $3,500 in furs, jewelry, and “personal ornaments”;
- Private libraries, including electronic media (e.g., DVDs), up to $3,500;
- All family pictures and keepsakes;
- Household goods, appliances, furniture, and yard equipment, up to $6,500 for a single person or $13,000 for a couple, provided no individual item is worth more than $750.
Wages, Savings, and Wildcard Items
But what about intangible items, such as paychecks and savings? Wages are exempt based on a simple formula: You can keep the greater of 75 percent of your “disposable” earnings or 30 times the federal minimum wage (which works out to $217.50 per week).
For savings, there are many types of accounts that are exempt entirely from bankruptcy, including health savings accounts, tax-exempt retirement accounts, IRAs and Roth IRAs, and civil service pensions. Most public and court-ordered assistance is also exempt, including unemployment benefits and alimony.
Finally, Washington allows a “wildcard” exemption of $3,000 for any kind of property, but no more than $1,500 may be used to protect cash and securities.