Connecticut Bankruptcy Exemption Statutes Help You Keep Your Property

When Connecticut residents consider filing for bankruptcy, one common concern is that they will lose their house, car, or property in the process. While Chapter 7 bankruptcy does involve the liquidation of assets, the Connecticut bankruptcy exemption statutes can help you keep what matters most.

How Do Bankruptcy Exemption Statutes Work?

When you file for a Chapter 7 bankruptcy, the bankruptcy trustee is charged with liquidating all your disposable assets to satisfy your creditors. But that doesn’t mean you will be homeless or penniless when the bankruptcy discharge is filed. Bankruptcy exemption statutes protect your most important property to make sure you can survive the process, and start to rebuild after the bankruptcy case is complete.

Connecticut state bankruptcy laws carve out several categories of property, setting limits on some types of property that can be excluded from bankruptcy liquidation. Generally, if you and your spouse are filing for bankruptcy together, you will each be entitled to claim the full exemption amount. That means a married couple can often protect twice as much property as an individual bankruptcy petitioner.

Choosing Federal or Connecticut Bankruptcy Exemptions

The Bankruptcy Code requires that you choose whether you want to apply the federal bankruptcy exemptions or the state bankruptcy exemptions to your case. You can’t mix and match. Once you pick state or federal, those rules apply to each category of protected property. That’s why you should carefully review your bankruptcy exemption options with your attorney before filing your petition.

Homestead Exemption

The homestead exemption is designed to protect your house, mobile home, or other real property.

• Federal Homestead Exemption: $27,900 net equity for individuals or $55,800 for co-owning spouses

• Connecticut Homestead Exemption: $250,000 equity. This amount was increased from $75,000 effective October 1, 2021. Although there remains some controversy about whether the increased exemption amount can affect debts incurred prior to that date, both bankruptcy court decisions entered so far say that it does. As with other exemptions, this is per filer. So, if a married couple files jointly, and own their house jointly, it is now possible to exempt up to a half million of equity in total. As time goes by the ability to do this will become unquestioned. Because the retroactivity issue is still unsettled, though, your situation with respect to the equity in your home requires extra careful consideration with an experienced bankruptcy lawyer.

Motor Vehicle Exemption

You can generally protect one car, truck, or motor vehicle from bankruptcy, up to a certain value.

• Federal Motor Vehicle Exemption: $4,450

• Connecticut Motor Vehicle Exemption: $3,500

Personal Property Exemptions

Both federal and state laws have categories for different types of personal property that can be protected. Under the federal system, there are limits on some types of personal property. Connecticut is one of the few states that does not put a financial limit on personal property exemptions.

• Federal Personal Property Exemptions:

• General personal property (furnishings, appliances, clothing, household goods, instruments, animals, and crops) up to $700 per item and $14,875 total

• Jewelry up to $1,875

• Wrongful death payments to dependents

• Personal Injury payments up to $27,900 (excluding pain and suffering, and pecuniary loss)

• Lost earning payments (unemployment benefits)

• Health aids

• Connecticut Personal Property Exemptions:
  • Furniture
  • Appliances
  • Clothing
  • Wedding and engagement rings
  • Food
  • Health aids
  • Burial plot
  • Insurance proceeds for damage to exempt property
• Spendthrift trusts needed to support you or your family

Tools of the Trade Exemption

No one – not even your creditors – wants a bankruptcy to put you out of business. Federal law allows up to $2,800 in exemptions. However, Connecticut completely exempts tools, books, equipment, and livestock reasonably necessary to pursue your trade. This includes a farm owned at least 50% by members of the same family.

Retirement Account Exemptions

You don’t have to zero out your retirement savings to file for bankruptcy. Federal law protects all tax-exempt accounts and IRAs, and Roth IRAs up to a total of $1,512,350. Connecticut also shields 100% of most pension and retirement plans including:

• 401(k)s
• IRAs
• Defined benefit plans (pensions)
• State and municipal employee plans
• Teacher plans
• Probate judges and court employee plans

Alimony (Spousal Support) and Child Support Exemption

Spousal support and child support are supposed to be based on the amount you and your children need to live comfortably. In keeping with that, both federal and state law exempt these payments from bankruptcy. The federal exemption covers all alimony and child support needed for support. Connecticut law applies the same rules as wage income (described above).

Insurance Exemptions

Insurance policies and benefit payments are supposed to be a safety net. Federal and state bankruptcy exemption statutes protect these assets to different degrees.

• Federal Insurance Exemptions:
  • Unmatured life insurance policies (except credit insurance)
  • Life insurance policies with loans up to $14,875
  • Disability, unemployment, or illness benefits
  • Life insurance payments to dependents
• Connecticut Insurance Benefit Exemptions:
• • Unmatured life insurance policies
  • Some life insurance proceeds
  • Health and disability benefits
  • Fraternal benefit society benefits

Public Benefit Exemptions

Similarly, if you receive federal or state welfare or public benefit payments, those are likely exempt as well. There are bankruptcy exemption statutes for:

• Public assistance (federal only)
• Social security benefits
• Unemployment compensation
• Earning incentive wages (Connecticut only)
• Crime victims’ compensation
• Veterans’ benefits
• Aid to the aged, blind, disabled, or families with dependent children (AFDC) (Connecticut only)

“No Asset” Bankruptcies

When everything you own fits into one of the bankruptcy exemption statutes, this is called a “no asset” bankruptcy. You will still need to go through the bankruptcy process. However, if there are no non-exempt assets to be liquidated, your debt can be discharged easily without putting your property at risk. The vast majority of chapter 7 cases fit this description.

When Exemptions Don’t Cover Enough

On the other hand, if your home, bank accounts, or other property exceeds the bankruptcy exemption statutes described here, you could be at risk of losing your assets. In these cases, a Chapter 13 repayment plan may be a better option. If you have a reliable source of income and can commit to a three to five year payment plan, a Chapter 13 bankruptcy can protect your assets while reorganizing and paying off your debts.

Talk to a Bankruptcy Attorney About Protecting Your Assets

With all these different limits and exemptions, you can see why it is important to carefully review your assets and income sources with a bankruptcy attorney at the start of your case. Depending on what you own, and where your money comes from, you could find exemptions to cover most, if not all your assets.

At Lawrence & Jurkiewicz, our bankruptcy attorneys focus our practice on helping people. We don’t want you to lose more assets than you have to in satisfying your debts. We will meet with you to review your assets and income sources, identify the best bankruptcy exemption statutes, and file for bankruptcy. Our bankruptcy attorneys want to help you get a fresh start. Please contact us for a free consultation or call us at (860) 264-1551.