Student Series: Wildcard Exemptions

Students are back from break! And ready to tackle some more bankruptcy forms and self-help materials.

As we mentioned last week in our first student blog posts, there a quite a few students working on the Lab’s Financial Distress Project. They are constructing self-help materials, and in doing so learning the ins and outs of the bankruptcy process, interacting with court users, and drawing on literature from other fields.

Last week, Seth Motel talked about what he had learned from a small sample bankruptcy filings from Connecticut. This week, Alvina Pillai, also on the Bankruptcy Team of the Financial Distress Project, talks about how to navigate the complicated assessment of household items and federal “wildcard” exemptions.

From Alvina:

Applying the Federal Bankruptcy Exemptions

When someone files for bankruptcy, creditors have access to many of their assets and household items. The Bankruptcy Court can ask the filer to sell some of these items and use the proceeds to pay back their creditors. But, filers are entitled to keep certain assets and household items away from the reach of creditors. The specific amounts of items they are able to keep changes depending on which state they live in. For example, filers in Maine are entitled to keep six months of feed for livestock while filers in Vermont are entitled to keep a certain amount of heating oil. Some states allow filers to choose between their state exemptions and separate set of federal exemptions.

2015.08.08.Bankruptcy for DalieConnecticut, where our project takes place, allows filers to choose between either state or federal exemptions. After determining that the federal exemptions would be more beneficial for our particular filers than the state exemptions, I translated that into our bankruptcy self-help packets. This process was slightly more complicated than I expected.

One category, the homestead exemption, allows filers to keep $23,675 worth of value in their homes. Another exemption, the wildcard exemption, allows filers to keep a certain amount of extra stuff depending on how much of their homestead exemption they use. For example, if they use their entire homestead exemption, they can only claim $1,250 worth of the wildcard. When working with individual clients, applying these exemptions is straightforward. First, a bankruptcy attorney would determine how much equity the filer had in their home. Then, based on that calculation, they would determine how much of a wildcard exemption the filer could claim. However, translating these two exemptions into a packet that many people with different levels of home equity would use posed some challenges. How could I clearly communicate that these exemptions depended on each other? Ultimately, I settled on drafting a set of columns that split filers into three categories depending on their home value. The categories consist of filers who can claim the maximum possible wildcard exemption, those that can claim some of the extra exemption, and those who can’t claim any of the extra exemption. Currently, this format is being tested to determine whether it communicates this concept clearly.

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