Which Exemptions Do You Use When You File Bankruptcy?

When you file bankruptcy, your exemptions determine what property you get to keep.  There are federal exemptions and state-law exemptions.  The exemptions you use depends on where you have lived for the past two years prior to filing bankruptcy and whether that state requires you to use its exemptions or permits you to use the federal exemption.  If you’ve lived in North Carolina for the past two years, the answer is simple – you’ll use the North Carolina exemptions when you file bankruptcy.  You can read about those here.


But what if you haven’t lived in North Carolina for two years?  In that case, you look to where you lived for the 6-month period just before the two-year period.  For example, if you are filing bankruptcy on January 1st, 2018, you look to where you lived for the majority of the time from July 1st, 2015 to Dec 31st, 2015.


Once you have figured out which state applies for the 6-month period, there is one more step – you must look to the law of that state to determine if non-residents can use that state’s exemptions.  Many states do not allow non-residents to use its exemptions so you’ll use the federal exemptions. Some states do, and in that case, you will use your prior state’s exemptions, or if permitted, the federal exemptions.


The state-law exemptions usually differ from the federal exemptions, and depending on what you own, one set of exemptions may be more advantageous.  That is why it is important to carefully review the time periods and your assets to determine if you should go ahead and file bankruptcy now, or if it would be better to wait so that you can use North Carolina exemptions.

You Don’t Lose Your Retirement Accounts in Bankruptcy

You made responsible choices and contributed to a retirement account, and now that nest egg has grown significantly.  Don’t worry about losing your retirement savings in bankruptcy, because it’s exempt.  Under North Carolina exemptions, all IRS qualified retirement accounts (employer pensions, 401(k)’s, Traditional IRA’s, Roth IRA, etc.) can’t be touched by the bankruptcy court.

If you are a state or municipal employee, those retirement benefits are exempt too.  This also applies to retirement accounts from the federal government, as well as other states and their municipalities.

If you haven’t filed bankruptcy yet, but are considering withdrawing from your retirement benefits to pay down debt, please call me first.  Many times this just delays the time before you end up filing bankruptcy, except now you’ve spent your retirement funds.  Funds you would have kept had you filed bankruptcy first.

Every dollar that you spend from an exempt source is a dollar that you could have otherwise kept after filing bankruptcy. The sooner you file bankruptcy, the sooner you will stop making payments on old debts that are keeping you from getting a fresh start.