Washington Bankruptcy Exemptions

Bankruptcy promises a fresh start—and it works. You'll straighten out your finances and keep the things you need to work and live. But Washington's "exemption laws" protect essential property only, not unnecessary luxury goods. To prevent a costly property loss, you'll want to learn about:

• choosing between Washington's exemptions and the federal bankruptcy exemptions
• what will happen to property you can't protect with an exemption, and
• whether you've lived in Washington long enough to use Washington's bankruptcy exemptions.

The information below will help. Also, try our ten-question bankruptcy quiz—it flags areas you'll want to look into further with a local bankruptcy lawyer.

Using Exemptions When Filing for Bankruptcy in Washington

Bankruptcy is a federal process so it works the same way in every state. However, you'll use Washington state law to protect your property. Washington filers are fortunate because they have two choices—the state or the federal exemption system.

Choosing an Exemption List in a Washington Bankruptcy

To help you make an informed choice, we've charted both the federal and Washington exemption sets and explain essential differences. You'll also find links that will take you to the Washington statutes.

You'll want to review each list carefully and compare it to the property you own because you can't use exemptions from both lists. If you decide to use Washington's state exemptions, you can also use the federal nonbankruptcy exemptions.

Our Washington Bankruptcy Exemption Analysis

Washington has some of the largest homestead exemptions in the country, so homeowners will likely fare better using Washington's exemptions. Filers who don't own a home will likely protect more property using the federal list because of the higher motor vehicle exemption and the generous wildcard exemption. However, filers who use property in a trade or business should factor in Washington's $10,000 tools of the trade exemption.

Keep in mind that our Washington bankruptcy exemption analysis is for illustration purposes only and won't apply in all cases. A bankruptcy lawyer will be in the best position to help you protect your assets in bankruptcy.

Other Washington Bankruptcy Exemptions

Here are more Washington exemptions, but it's not an exhaustive list. As with all exemptions, be sure to check for current amounts and qualification requirements.

Washington Pension and Retirement Exemptions

• 2.10.180, 2.12.090 - Judges
• 41.24.240 - Volunteer firefighters
• 41.26.053 - Law enforcement officials and firefighters
• 41.44.240 - City employees
• 41.32.052 - Teachers
• 43.43.380 - State employees
• 41.44.240 - City employees

Washington Public and Charitable Benefit Exemptions

• 7.68.070(10), 51.32.040 - Crime victim's compensation
• 48.36A.180 - Fraternal Benefit Society benefits
• 50.40.020 - Unemployment compensation
• 51.32.040 - Industrial insurance (workers' compensation)
• 74.04.280 - General assistance and public benefits
• 74.13.070 - Funds of children placed with welfare services

Washington Insurance Exemptions

• 48.18.400 - Disability benefits
• 48.18.410 - Life insurance proceeds
• 46.18.420 - Group life insurance proceeds
• 46.18.430 - Annuity contract proceeds up to $3,000 per month

Miscellaneous Washington Exemptions

• 6.27.150 - Wages, salary, or other compensation (check amounts).
• 25.04.250 - Specific partnership property
• 38.40.150 - Uniforms and firearms
• 72.65.060 - Earnings of work release prisoners

What Happens to Property You Can't Exempt in a Washington Bankruptcy?

It will depend on the chapter you file. In Chapter 7 bankruptcy, you lose property not covered by an exemption. The bankruptcy trustee responsible for managing your case will sell the property for the benefit of your creditors. In Chapter 13 bankruptcy, you can keep all of your property; however, that luxury comes at a price—literally. You'll pay your creditors the value of any property not covered by an exemption in your Chapter 13 repayment plan.

For example, say you own a car outright worth $3,000, and your state has a vehicle exemption of up to $5,000. Here's what would happen in each chapter.

• Chapter 7 Bankruptcy. If you file for Chapter 7 bankruptcy, you will get to keep your car because the exemption would protect the equity fully. In the same example, if your vehicle were worth $15,000, the bankruptcy trustee would sell your vehicle, pay you $5,000 for the exemption, and distribute the rest to your unsecured creditors.
• Chapter 13 Bankruptcy. In Chapter 13, you wouldn't need to pay extra to your creditors through your repayment plan. However, if the car were worth $15,000, you'd need to pay your creditors at least $10,000 (minus sales costs) through your plan.

Keep in mind that these examples don't take into account a vehicle loan. You'll find more information below.

Protecting a Financed Home or Car in a Washington Bankruptcy

Many people wonder if they can wipe out a home mortgage or car loan and keep the property without paying anything more. The simple answer is "No." Protecting the equity with an exemption will keep the Chapter 7 trustee from selling it, and you won't have to pay extra to keep it in Chapter 13, but there are more steps to take.

First, in a Chapter 7 case, the mortgage or car payment will need to be current. Second, you'll need to be able to continue to make the payment. Why? Because when you purchased it, you gave the lender a property "lien." The lien created a secured debt that allows the lender to take back the property if you don't pay as agreed—even in bankruptcy. So if you're behind on the payment and file for Chapter 7, you'll lose the property. Instead, consider catching up on arrearages in Chapter 13.

For more information, read about how mortgages work in bankruptcy and how to file for bankruptcy without losing a car.

Washington Bankruptcy Exemption Timing Rules

It's tempting to move to a state with significantly more generous bankruptcy exemptions when filing for bankruptcy. But it doesn't work that way. To prevent people from abusing the system, filers must live in the state for at least two years—otherwise, they must use the previous state's exemptions. Here's how it works.

• If you've made your permanent home (your "domicile") in your current state for at least two years, you can use the state's exemptions (or the federal exemptions if allowed).
• If your domicile hasn't been in the same state for two years, the rules get more complicated, so prepare yourself. In fact, it sounds so strange we'll explain it in three different ways so you know you didn't read it wrong. Here goes: You'll choose the state that you lived in the longest during the 180 days immediately before the two years before filing.

Did you get that? If not, here's a way to figure it out. Count back two-and-a-half years. Then ask yourself where you lived the longest during the first six months of that two-and-a-half-year period.

Still confused? Let's try an example. Suppose you planned to file on January 1, 2022. Your two-and-a-half-year period would start July 1, 2019, and you'd qualify to use the exemptions of whichever state you resided in the most during the July 1, 2019, through December 31, 2019 period. You wouldn't have to file your case there, but you'd use that state's exemptions. Hopefully, that helps!

Learn more about timing a bankruptcy filing.

Special Homestead Exemption Rules

The homestead exemption protects your ownership interest in your home. You'll need to read your state's homestead statute to determine the specifics, such as the amount of equity and acreage covered, whether the exemption protects a manufactured home, and if you need to file a homestead exemption with the county clerk. But in all states, the property must be your residence. Also, you'll need to comply with a federal timing law—here's the rule:

You must live in the home for more than 40 months before filing for bankruptcy. Otherwise, your homestead exemption is capped at $189,050 if you file on or after April 1, 2022 (the amount changes every three years). This cap won't apply if you bought your home with home sales proceeds from that state.

Find out more in Chapter 7 Homestead Exemption in Bankruptcy.

Navigating Your Washington Bankruptcy Case

Bankruptcy is an unusual area because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

One way to keep track of your research is to use the bankruptcy forms as an outline. You'll find links to the exemption-related bankruptcy forms and other exemption resources in the chart below. You can also look at the list of Chapter 7 and 13 bankruptcy forms to see where this topic fits in the bankruptcy scheme. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

Updated March 17, 2022