On July 1, 2013, Governor Kitzhaber signed Senate Bill 396 which now allows Oregon residents to use federal exemptions when filing for bankruptcy. Previously, Oregon residents were limited to exemptions provided for under Oregon law As discussed on our web site and in a previous blog post, “exempt” property is property than cannot be taken by creditors or by a bankruptcy trustee. Under state and federal law, a debtor filing for bankruptcy can exempt particular types of property up to a particular dollar value.
One of the more common examples is what is called the “homestead exemption”. This allows a debtor to exempt equity in their home up to $40,000 (or $50,000 for a married couple filing a joint bankruptcy petition) under Oregon law, but only $22,975 (or $45,950 for joint debtors). This example might suggest that Oregon exemptions are more generous than federal exemptions. In some circumstances, this is correct. But in many cases, federal exemptions can be more advantageous for the debtor.
Federal law provides a “catch-all” or “wild card” exemption of up to $1,225 plus up to $11,500 of any unused portion of the homestead exemption for any property. And, as a recent Ninth Circuit case held, “any property” means exactly what it says — any property, even if it is a luxury item.
Let’s say that a debtor has a house worth $300,000 (with a $320,000 mortgage against it), and a boat owned free and clear worth $12,625. Because the house has no equity in it, there is no need to exempt it. As to the boat, the debtor would not be able to keep to boat if Oregon exemptions are used as there is no allowable exemption (except for perhaps the $400 “wildcard” exemption). However, using federal exemptions, the debtor could exempt the full value of the boat, and keep it out of the hands of the Trustee. This same analysis holds true if the debtor does not own any real property.
Deciding which assets are exempt and how and if you can protect these assets from your creditors can be one of the more important and difficult aspects of a bankruptcy case. One drawback of filing for bankruptcy is that a debtor loses non-exempt property as a condition of obtaining a discharge of debts. It is therefore extremely important to consult with us if you have any questions regarding the issue of exempt assets, and to determine whether federal exemptions or Oregon exemptions are more favorable.
This post is intended to be purely informational in nature, and cannot be considered legal advice. If you have questions related to exemptions in bankruptcy, please call our office at (503) 545-1061 (Oregon cases) or (360) 836-4238 (Washington cases) to schedule a free initial consultation.