How to Use the Wildcard Exemption in Bankruptcy

The wildcard exemption can help you protect the property of your choice from creditors in bankruptcy.

By , Attorney · University of the Pacific McGeorge School of Law

Bankruptcy filers can use exemptions to protect things needed to work and live, but typical exemptions don't cover luxury items. A wildcard exemption can protect the property you wouldn't typically be able to keep in bankruptcy, such as valuable collectibles, art, jewelry, or cash. In this article, you'll learn the following:

  • how bankruptcy exemptions work
  • what a wildcard exemption protects
  • the differences between state and federal bankruptcy exemptions, and
  • how a wildcard exemption works in Chapters 7 and 13.

Once you've learned how to use the wildcard in bankruptcy, check out the resources provided at the end of the article. You'll find links to applicable bankruptcy forms and additional articles we think you'll enjoy.

How Does the Wildcard and Other Bankruptcy Exemptions Work?

You don't lose all of your property when you file for bankruptcy because stripping you of everything you own wouldn't help you get the fresh start you need. Each state has a set of bankruptcy exemptions you can use to keep property.

Although bankruptcy exemptions vary between states, most cover some equity in your home and car, clothing, jewelry, household goods, and other necessary items.

What Is a Wildcard Exemption?

A wildcard exemption allows you some freedom to keep property you love or that is essential in some way. Wildcard exemptions work by not limiting you to a particular property type, such as the tools you need in your profession or the equipment your doctor prescribes.

You can use a wildcard exemption to protect luxury items that a bankruptcy exemption wouldn't usually cover.

What Will a Wildcard Exemption Protect?

A wildcard exemption will often protect anything you'd like to keep, but that's not always true. If you're lucky, your state's wildcard exemption will let you safeguard your Pokemon cards, pet alpacas, or any other wonderful thing you probably don't need.

However, some states limit wildcard exemptions, so check for exclusions. Items commonly excluded include cash and real estate.

How Much Can I Protect With a Wildcard Exemption?

Most wildcard exemptions tell you the exact dollar amount protected. For instance, a wildcard exemption might allow you to keep any property up to $3,000.

You could use this wildcard exemption on property that isn't protected by an exemption, like your crystal and agate collection. Or you could stack it onto another exemption and increase a $10,000 motor vehicle exemption to $13,000.

Example. You have a piano worth $2,000, 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 leaving $3,000 for other assets.

Example. You own a car worth $5,000 outright, but 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 exempt it entirely.

What Are the Differences Between State and Federal Bankruptcy Exemptions?

Both state and federal bankruptcy exemptions exist, but not everyone can use both sets. Each state has exemptions, but some let filers use the federal bankruptcy exemptions instead.

When deciding between state and federal exemptions, you'll naturally choose the set that protects the things significant to you.

The Federal Wildcard Exemption

The existing federal wildcard exemption isn't much, but it isn't limited to a particular type of property. However, you can also use any unused portion of the homestead exemption on anything you choose, giving some filers two federal wildcard exemptions.

The result is the federal wildcard exemption will be substantial if you don't own a home but somewhat average for filers with a lot of home equity. Here's where you'll find the current federal bankruptcy exemption amounts and learn whether your state will allow you to use them.

State Wildcard Exemptions

Not all states have a wildcard exemption. You can find out if a wildcard exemption is available in your state by reviewing your state's bankruptcy exemptions (scroll down to the chart in the middle of the article).

How Do Wildcard and Other Exemptions Work in Chapters 7 and 13?

You'll use the same bankruptcy exemptions to protect property in Chapters 7 and 13. But what happens to nonexempt property—those things an exemption doesn't cover—is different.

Bankruptcy Exemptions in Chapter 7

In Chapter 7 bankruptcy, you keep exempt property. The Chapter 7 bankruptcy trustee appointed to your case sells nonexempt property and uses the proceeds to pay your creditors.

Bankruptcy Exemptions in Chapter 13

You keep all your property in Chapter 13, whether exempt or not, but this benefit can be costly.

In your Chapter 13 plan, you pay unsecured creditors—those without collateral guaranteeing the debt—the value of the nonexempt property. However, your court will likely let you deduct the sales costs the Chapter 7 trustee would have paid to sell the nonexempt property.

Example. Your house has $400,000 in equity, $100,000 of which you can protect with your state's homestead exemption. You'll pay $5,000 per month in a five-year plan to keep the house (60 months x $5,000 per month = $300,000 nonexempt equity).

Remember that the actual nonexempt amount would likely be reduced by what it would have cost to sell the house. However, you'll also pay trustee fees and other amounts required under bankruptcy law. Learn how bankruptcy trustees get paid.

Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

More Bankruptcy Information

Bankruptcy Forms and Document Checklist

United States Courts Bankruptcy Forms

Chapters 7 and 13 Bankruptcy Forms

Chapter 7 Bankruptcy Document Checklist

More You Might Like

How to Keep Your Tax Refund After Filing for Bankruptcy

Will Chapter 7 Prevent a Car Repossession?

What Happens to Your Personal Property in Chapter 7 Bankruptcy?

Your Home in Chapter 13

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 hiring a local bankruptcy lawyer.

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