Federal Exemptions in Oregon Bankruptcy

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News | by — June 28, 2013

The Federal Bankruptcy Code provides for the use of Federal Exemptions in bankruptcy, unless a state opts out of the federal exemptions. On June 25th, the Oregon Senate passed SB 396. This bill removes the “opt-out” language from our state exemptions, thereby allowing a debtor in bankruptcy to use either federal or state exemptions (but not a combination of both). Having already passed in the house, SB 396 is awaiting signature from the Governor and if signed as expected, will take effect immediately upon signing.

This change will have a profound effect on bankruptcy practice in Oregon, and will greatly benefit Oregonians who are facing a bankruptcy.

What are exemptions

Simply put, exemptions are a floor: the minimum amount of assets that a person is allowed to keep to support the debtor and debtor’s family. We are most concerned with asset protection in a Chapter 7 bankruptcy, because any non-exempt assets can be sold to repay creditors.

How are exemptions used in Bankruptcy

In a bankruptcy, exemptions protect the equity in your personal and real property from being sold to repay your creditors. The exemptions then protect the minimal assets that a debtor emerges from a bankruptcy with, and with which a debtor is supposed to begin his or her fresh start.

Historically, Oregon exemptions have been very low compared to many other states. For example, a single debtor is allowed only $400 total in cash or in the bank. This $400 “wildcard” was also used to protect assets that don’t have a specific exemption, such as a tax refund. If exemptions are intended to be a safety net, and define a minimal standard of living, a $400 cushion is wholly inadequate.

Now that a debtor can choose to use the federal exemptions, we will be able to protect more assets and allow a debtor to emerge from a bankruptcy with a much greater safety net than previously possible in Oregon. Of particular note is the federal wildcard exemption. Under the federal exemption scheme, a debtor can use the more generous wild card of $1,225 plus up to $11,500 of any unused homestead exemption to protect assets. This combined $12,725 per debtor can be used to protect any asset, and unlike the Oregon wildcard, can be added to other exemptions to increase the value of that exemption. As a result, debtors with little or no equity in their homes will be able to protect significantly more assets than they would have been able to using Oregon exemptions.

We understand that applying these exemptions to your situation may be confusing. This is what we do, and we would be happy to sit down with you for a free consultation to review your financial circumstances.

A comparison of commonly used federal and Oregon state exemptions is below:

Exemption Oregon Federal
Homestead
ORS 18.395/11 USC 522(d)(1)
$40,000 Individual
$50,000 Joint
$22,975 Individual
$45,950 Joint
Wild Card
ORS 18.345(1)(o)/11 USC 522(d)(5)
$400 Individual
$800 Joint
Oregon wildcard cannot be combined with or used to increase any other exemption
$1,225 Individual
$2,450 Joint
Plus, up to $11,500 per debtor of any unused homestead exemption. Federal wildcard can be added to any exemption to increase it
Motor Vehicle
ORS 18.345(1)(d)/11 USC 522(d)(2)
$3,000 Individual
$6,000 Joint
$3,675 Individual
$7,350 Joint
Household goods and furnishings, wearing apparel, appliances and books, animals and musical instruments
11 USC 522(d)(3)
$12,250 Individual
$24,500 Joint
(Maximum of $575 per item)
Jewelry
11 USC 522(d)(4)
$1,550 Individual
$3,100 Joint
Household goods and furnishings
ORS 18.345(1)(f)
$3,000 Individual
$3,000 Joint
Wearing Apparel and Jewelry
ORS 18.345(1)(b)
$1,800 Individual
$3,600 Joint
Books, Pictures and musical instruments
ORS 18.345(1)(a)
$600 Individual
$1,200 Joint
Animals and poultry for family use
ORS 18.345(1)(e)
$1,000 Individual
$1,000 Joint
Personal Injury Awards
ORS 18.345(1)(k)/11 USC 522(d)(11)(D)
$10,000 Individual
$20,000 Joint
$22,975 Individual
$45,950 Joint

 

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