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Chapter 13 Bankruptcy Blog Post

What Are Federal Non-Bankruptcy Exemptions?

Can I Use Them In My Georgia Bankruptcy Case?

Georgia is an “opt-out” state. This means that, like many states, Georgia “opted-out” of the federal exemptions and elected to apply its own bankruptcy exemptions in Georgia bankruptcy cases rather than apply the federal bankruptcy exemptions set out in Section 522(d) of the Bankruptcy Code. The Good News is that whether you live in a state in which state exemptions apply or in a state in which federal exemptions apply, “retirement accounts” receive special protection in bankruptcy. When the Bankruptcy Code was amended in 2005, in an effort to shield and protect “retirement accounts”, Congress enacted Section 522(b)(3)(C) to ensure that all debtors would have protection for any “retirement account ”whether they filed bankruptcy in an “opt-out” state or whether they filed in a state in which the federal exemptions were applicable.

Why are federal non-bankruptcy exemptions of any interest to Georgians in an “opt-out” state? The answer lies in Section 522(b) which restricts the federal bankruptcy exemptions to “property specified in Section 522(d)”  but which allows filers in “opt-out” states to exempt ”any property exempt under federal law, other than subsection (d), or state law”. As a result, federal non-bankruptcy exemptions are also available to shield and protect the property of Georgians who file bankruptcy. Why is this important?  As regular visitors to our blog site know, exemptions are important to determine whether a Chapter 7 case is in your best interest or to determine how much you may have to pay to your unsecured creditors in a Chapter 13 case.

The term “federal non-bankruptcy exemption” refers to a group of “stand-alone” federal laws which include outright “exclusions” and “exemptions” from collection activity such as a social security benefit, a veteran’s benefit and provide a broad array of protections for disability benefits. Other such federal laws offer limitations on garnishment  and restrictions on collection activity by creditors. A review of any list of federal non-bankruptcy exemptions reveals that many of them, such as a social security benefit, a veteran’s benefit, or a disability benefit have already been incorporated into both the federal exemptions and Georgia’s state exemptions and, therefore, are bankruptcy exemptions.  Others, such as exemptions for compensation for war injury, Medal of Honor winners, Indian Tribes, benefits paid to survivors of lighthouse service persons and seaman’s wages and clothing may have less general applicability. Also, under Section 522(c)(2)(B), pre-petition property which would otherwise be considered to be exempt from your creditors may remain liable for a tax lien. In such a case, I.R.C. Section 6334(a) provides a “federal non-bankruptcy exemption” which may be asserted to protect certain of your property against a valid federal tax lien.

As the old saying goes, however; “every little bit may help”. The extent to which a federal non-bankruptcy exemption may be applicable to your case will depend on the specific facts of your case.

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