Tip of the Day 12/2/2012: The “super” exemption

Tip of the Day 12/2/2012: The “super” exemption

Tip of the Day for December 2, 2012. The Super Exemption

Your exempt property is the property you can keep if you file bankruptcy. Bankruptcy is supposed to give you a “fresh start” in life. You discharge your debts and get a “do-over”. But, you aren’t starting with nothing. Exemptions vary from state to state. In Indiana the state legislature has determined what property you will be allowed to keep if you file bankruptcy. Any non-exempt property is taken by the bankruptcy trustee, liquidated (sold and turned into cash) and used to pay your creditors. There are various types of property. Each category has its own exemption.

Tangible personal property is one category. This is things you can touch. The word “tangible” means “touchable”. So tangible personal property would be furniture, cars, pots and pans, lawn mowers, jewelry, guns. The current exemption amount for tangible personal property in Indiana is $9,350 for an individual and $18,700 for a married couple.

Intangible property is property you can’t physically touch. It exists on paper. Examples are money in the bank, money someone owes you, shares of stock in a company, cash, and your income tax refund you expect to get next year. The exemption limit for intangible property in Indiana is $350 for an individual and $700 for a married couple.

Retirement funds are actually a type of intangible property but they have their own special exemption. Tax deferred retirement funds and Roth IRAs are fully exempt. If you have managed to accumulate a substantial retirement fund, the good news is that you will get to keep all of it if you file bankruptcy.

Real estate is another type of property. Real estate is land and the permanent improvements permanently attached to land (like a house, a barn or a garage). If the real estate is your home, the exemption is $17,600 for an individual and $35,200 for a married couple. The exemption for your home is called the homestead exemption. If you live in a mobile home, the homestead exemption applies to your mobile home even if it isn’t actually permanently attached to land.

Real estate which is not your home, like a separate lot or acreage, is subject to the same exemption as tangible personal property- $9,350 for an individual and $18,700 for a married couple.

What about the “super” exemption? In Indiana and many other states, there is a unique form of real estate ownership available to married couples only called “tenancy by the entireties.” If you were married when you took title to the real estate and the deed says it is being conveyed to you and your spouse “as husband and wife”, then you own the real estate as tenants by the entireties. If only one of you files bankruptcy, then the entire value of the real estate is exempt. This is true whether the real estate is your home or not. If you both file bankruptcy together in a joint case, you do not get this special exemption and the limit of value you can keep is either $18,700 if the property is not your home or $35,200 if the property is your primary personal residence. So, you might think the smart thing to do if you both owe substantial debts and you are both going to have to file bankruptcy would be to file separate bankruptcies so you could each get the super exemption for tenancy by the entireties property. Sorry, it doesn’t work that way. If you have joint debts, the bankruptcy trustee will be watching for you when you file and he or she will object to your attempt to use the super exemption. The exemption for tenancy by the entireties property only applies to protect property owned by a husband and wife from being taken by
the creditors who are owed money by just one of the spouses. It is designed to protect a spouse from losing his or her home to the creditors of the other spouse who might have incurred debt without the knowledge of the non-borrowing spouse. If both spouses incur a debt together, then the protection does not apply. Another exception to the super exemption is that it doesn’t apply to debts owed to the IRS (surprise!).

There are other exemptions and rules about them I haven’t gone into here. If you need more information about filing for bankruptcy and what property you will be allowed to keep, contact my office at (812) 336-7293 or send us an email request

Rudy Savich

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Rudolph Wm. Savich
213 S Rogers St., Ste 3A/B,
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