Federal Bankruptcy Exemptions Now Available in Oregon

17 Jul Federal Bankruptcy Exemptions Now Available in Oregon

magicExemption laws define the belongings debtors may keep safe from debt collectors, even after bankruptcy. On July 1, 2013, Oregon joined 20 other states in permitting debtors to use the list of federal exemptions provided in 11 USC §522(d) when filing bankruptcy. This will help Oregon debtors protect more of their possessions and obtain a fresh start in the event of bankruptcy.

Debtors file bankruptcy to shield themselves from debt collectors. Bankruptcy stops individual creditors and turns collection over to a court appointed trustee. In bankruptcy proceedings, the trustee sells the debtor’s non-exempt property and distributes the proceeds.

Exemptions in bankruptcy are determined by state and federal law. The Bankruptcy Reform Act, passed by Congress in 1978, included a list of exempt assets debtors were permitted to keep. As a concession to the states, it also permitted each state to “opt out” of the federal scheme and use their own set of exemptions. Oregon opted out in 1981. The Oregon Legislature reversed the “opt out” and now permit use of either Oregon or federal exemptions.

Oregon has many exemptions and they can be used in bankruptcy unless federal exemptions are chosen. However, if property of a debtor does not fit into a category defined by an exemption, and it is worth enough money to justify the effort, it will be taken from the debtor and sold by the bankruptcy trustee.

The only exemption protecting uncategorized belongings in Oregon law is ORS 18.345(p). This protects the “debtor’s interest, not to exceed $400 in value, in any personal property.” This exemption, often called the “wildcard”, may not be used to increase the amount of any other state exemption. Federal bankruptcy exemptions contain a similar “wildcard” of $1,225 which can be increased to $12,725 for an individual and up to $25,450 for married debtors by using part of the federal homestead. The federal wildcard can be used to increase any other exemption; in addition to being much larger than the Oregon wildcard, it is also more useful.

As an example, if a married couple owned two cars, one car worth $10,000 and the other $12,000, had a small savings account with a balance of $1,500 and expected a tax refund of $2,200 but no equity in their home, the difference is striking. With the Oregon automobile exemption of $3,000 for each car and a $400 wildcard, the bankrupt couple would be left with $6,400 and no cars. Federal exemption for automobiles is $3,675 each. With federal exemptions and the flexible wildcard, the couple would keep everything.

Both federal law and the new Oregon statute prohibit the mixing and matching of state and federal exemptions. If federal exemptions are chosen, no state exemptions can be used by the bankruptcy debtor. However, if Oregon exemptions are selected, the debtor is only prohibited from using the federal bankruptcy exemptions listed in 11 USC §522(d).

State and federal laws both contain exemptions for homes, automobiles, household goods, tools of the trade, and personal injury claims as well as other assets. Many of the state and federal exemptions are similar in amount. Bankruptcy can be complicated and while an attorney is not required for a debtor to file bankruptcy, competent legal advice is a must. Nobody wants to file bankruptcy. However, it is now easier to get a fresh start if financial catastrophe makes bankruptcy necessary.

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I was admitted to practice in 1978. I am certified as a Consumer Bankruptcy Specialist by the American Board of Certification. I regularly speak on tax and bankruptcy issues at state, regional and national conferences. Years of experience in practice before the Internal Revenue Service and Oregon Department of Revenue have given me the background to resolve a large variety of consumer tax issues.
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