How to Use the Wildcard Exemption in Bankruptcy
The wildcard exemption can help you protect otherwise unprotected property from creditors in bankruptcy.
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The wildcard exemption in Chapter 7 bankruptcy provides a way to protect more of your assets from liquidation during bankruptcy. This particular exemption allows you to protect property that is not normally covered under other exemptions.
Here's how the wildcard exemption works.
Exemptions in Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, you are allowed to keep any property that is exempt (that is, covered by a bankruptcy exemption). If property is not exempt, the bankruptcy trustee is entitled to sell the property and use the proceeds to pay your creditors.
Each state has a set of exemptions that can be used in bankruptcy. Some states allow bankruptcy filers to use a set of federal bankruptcy exemptions instead. The exemptions cover certain types of property (such as your home, car, clothing, jewlery, household goods, and the like).
How the Wildcard Exemption Works
If your state has a wildcard exemption, you can apply it to otherwise exempt property. So, for example, say you have a piano worth $2,000 that you want to keep. Your state does not provide an exemption for musical instruments. However, it does have a wildcard exemption in the amount of $5,000. You could apply $2,000 of that wildcard exemption to your piano -- and keep it. You would then have $3,000 left to apply to other property.
You can also add the wildcard exemption to an existing exemption. For example, say you have a car worth $5,000 and your state's motor vehicle exemption is only $3,500. If your state has a wildcard exemption in the amount of $2,000, you could apply $1,500 of it to your car. That would mean your entire car would now be exempt, and you'd get to keep it.
State Wildcard Exemptions
Amount of wildcard exemption. Unfortunately, some states do not have a wildcard exemption. Others have wildcard exemptions that range considerably in amount. In some states the wildcard exemption is an amount of another property exemption that you don't use. For example, you might be able to apply any unused homestead or burial plot exemption to other property.
To find your state's wildcard exemption, and to learn more about exemptions and how they work, see Bankruptcy Exemptions -- What Do I Keep When I File for Bankruptcy?
Types of property to which the wildcard applies. Some states allow you to use the wildcard exemption for any property. Others specify which property it may be applied to. For example, some states only permit you to apply the wildcard to personal property.
The Federal Bankruptcy Wildcard Exemption
Currently, the wildcard exemption amount in the federal bankruptcy exemptions is $1,225 plus up to $11,500 of any unused homestead amount. These amounts can be applied to any property. Remember, you can only use the federal bankruptcy exemptions if your state provides you that choice. To learn which states allow use of these exemptions, see Federal Bankruptcy Exemptions.