You don't lose all of your property when you file for bankruptcy. Exemption laws let you keep the property you'll need to work and live so that you'll truly get a fresh start.
Exemptions don't cover things that are considered luxury items. That's where a wildcard exemption comes in. The wildcard exemption allows you to protect property that wouldn't normally be covered under other exemptions, such as valuable collectibles, art, jewelry, or cash.
Here's how the wildcard exemption works.
In Chapter 7 bankruptcy, you can keep property covered by a bankruptcy exemption. If you own property that isn't exempt, the Chapter 7 bankruptcy trustee is entitled to sell it and use the proceeds to pay your creditors.
Each state has a set of exemptions that you can use 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, jewelry, household goods, and the like.
You get to protect the same types of property in Chapter 7 and Chapter 13. What happens to nonexempt property is a bit different, though. Unlike Chapter 7, you keep all of your property in Chapter 13 whether it's exempt or not. But, it comes at a price.
You must pay your unsecured creditors the same amount that they'd receive in a Chapter 7 case. Since they'd receive the proceeds from the sale of your nonexempt property, you must pay them at least that much—even more if you have a significant disposable monthly income. Learn more in The Chapter 13 Bankruptcy Repayment Plan.
If your state has a wildcard exemption, you can apply it to otherwise nonexempt property. So, for example, say you have a piano worth $2,000 that you want to keep but your state doesn't provide an exemption for musical instruments. However, it does have a $5,000 wildcard exemption. 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 $2,000 wildcard exemption, you could apply $1,500 of it to your car and keep it since the entire car would now be exempt.
You'll need to review your state exemptions to see if you'll have a wildcard available to you. Here are a couple of things to keep in mind:
Unfortunately, some states don't have a wildcard exemption. Others have wildcard exemptions that range considerably in amount. In some states, you can use an unused portion of one exemption—often the homestead exemption—as a wildcard exemption.
Some states allow you to use the wildcard exemption for any property. Others specify the property in which it can be used. For instance, some states permit you to apply the wildcard to personal property only.
To find your state's wildcard exemption, and to learn more about how exemptions work, see Bankruptcy Exemptions—What Do I Keep When I File for Bankruptcy?
As of April 1, 2019, the wildcard exemption amount in the federal bankruptcy exemptions is $1,325, and $12,575 of unused residential property exemption ($1,250 and $11,850 respectively for cases filed between April 1, 2016, and March 31, 2018). (11 U.S.C. § 522(d)(5).)
These amounts can be applied to any property. Remember, you can only use the federal bankruptcy exemptions if your state provides you that choice. You can learn which states allow the use of these exemptions in Federal Bankruptcy Exemptions.
Updated March 18, 2019