What Are the Hawaii Bankruptcy Exemptions?

What Are the Hawaii Bankruptcy Exemptions and Why Are They Important in a Chapter 7 Bankruptcy? 

Deciding whether or not to file bankruptcy involves a lot of different factors. Many people wonder if they'll be able to hold on to their property. Luckily, bankruptcy laws include exemptions, which allow debtors to protect different types of property up to varying amounts so that they can maintain a basic standard of living.

Exemptions don't extend to things like investment properties or luxury items, so you can expect to turn over any nonexempt property in bankruptcy. But most Chapter 7 don't have these things, so they find that all their property is exempt and protected from being sold by the bankruptcy trustee.

Does Hawaii Allow Filers to Use Federal Bankruptcy Exemptions?

Bankruptcy exemptions vary from state to state. Each state has its own exemption laws, and states can also decide whether or not to allow filers to use the federal bankruptcy exemptions. A minority of states allow filers to choose between state exemptions and federal exemptions, and Hawaii is on that list. This means that anyone filing bankruptcy in Hawaii can choose to use the state exemptions or the federal ones, depending on whichever suits them best.

Though you can choose between these two sets of exemptions, you can’t pick and choose for individual items. Whichever set you choose will be the only one that you can apply in your case. If you decide to use Hawaii's bankruptcy exemptions you can supplement them with the federal nonbankruptcy exemptions if any are applicable. 

If you're a recent transplant to Hawaii, this will look a little different. There is a two-year residency requirement to be able to use a state’s exemptions. This is referred to as the 730-day rule. If you haven’t lived in Hawaii long enough for this to apply, you may be limited to federal exemptions.

Real Property: The Hawaii Homestead Exemption

The Hawaii homestead exemption allows filers to protect the equity in their home, which is limited to no more than one acre of property. If you're the head of household, you can protect up to $30,000 of equity. If not, you can only protect $20,000 of equity. To be considered the head of household you must meet the IRS standard or reside in the real property and care for a direct relative (for example, a child, parent, sibling, or grandchild.)

Married couples filing jointly in Hawaii can’t double the homestead exemption, but if the property is jointly owned, the non-filing spouse is exempt from claims of creditors. Filers in Hawaii can also exempt sale proceeds for up to six months following a sale.

In contrast, the federal exemptions offer a homestead exemption of $27,900 in real property, which includes mobile homes and co-ops, or burial plots. Additionally, any unused portion of the homestead exemption up to $13,950 can be used for other property. Under the federal homestead exemption, married couples filing jointly can double this amount. 

Personal Property Exemptions

Hawaii also offers bankruptcy exemptions for your personal property of varying amounts.

Hawaii bankruptcy filers can protect up to $2,575 of equity in one motor vehicle. Under federal exemptions, a Hawaii filer could protect up to $4,450 equity in a motor vehicle. Equity is the value of the car minus the balance left on your car loan. 

Additionally, under Hawaii state exemptions you can protect your household furnishings, appliances, books, and clothing used by you and your family, as well as jewelry and watches up to a total of $1,000 in value. Federal exemptions protect household goods, clothing, animals, crops, appliances and furnishings, books, and musical instruments up to $700 per item, and up to $14,875 in total.

Hawaii filers can also protect a burial plot, up to 250 square feet, and all improvements and gravestones upon it under the state exemptions. There isn't a specific burial plot exemption under the federal bankruptcy exemptions. 

Miscellaneous Personal Property Exemptions

Hawaii bankruptcy filers using the state exemptions have special protection available for tools of the trade. Tools, instruments, uniforms, books, equipment, one commercial fishing boat and nets, one motor vehicle, and any other personal property ordinarily and reasonably necessary to your business, trade, or profession, are protected in full. Under federal law, tools of trade up to a $2,800 value are protected with an exemption.

Hawaii bankruptcy exemptions also protect the property of business partnership without limit.

Hawaii doesn't have a wildcard exemption. Wildcard exemptions provide an extra dollar amount that you can apply to any non-exempt property. The federal exemptions offer a fairly generous wildcard exemption of $1,475 plus the unused portion of homestead exemption up to $13,950 to exempt property of any kind.

Money Benefits

Beyond tangible personal property, there are certain forms of benefits or payments that you're entitled to maintain during your bankruptcy. Hawaii state exemptions protect your unpaid wages due for services from the past 31 days.

Hawaii state exemptions also offer protection for the following insurance benefits and proceeds without limit:

• Accident, health, or sickness benefits

• Annuity contract or endowment policy proceeds wherein the beneficiary is the insured's spouse, child, or parent

• Fraternal benefit society benefits

• Group life insurance proceeds

• Life insurance proceeds if the text of the policy prohibits proceeds from being used to pay the beneficiary's creditors

• Life or health insurance policy for spouse or child

Under the federal exemptions you can protect the following insurance benefits or proceeds up to the amount stated or in full: 

• Life insurance payments from a policy for the person you depended on, needed for support 

• Life insurance policy loan value, in accrued dividends or interest, to $14,875

• Unmatured life insurance contract, except credit insurance policy. 

Other Hawaii Exemptions

In addition to the above items that are protected specifically within the context of a bankruptcy, some provisions protect your property from creditors regardless of whether you happen to be in a bankruptcy or not. These protections exist under both Hawaii laws and federal statutes. Under Hawaii state laws the following public benefits are protected to the amount stated or in full:

• Public assistance paid by Dept. of Health Services for work done in-home or workshop

• Disability benefits

• Unemployment compensation

• Unemployment work relief funds to $60 per month

• Workers' compensation

Similarly, under federal exemptions, the following public benefits are protected in full: public assistance, social security, veteran’s benefits, and unemployment compensation. Again, this is both within the context of a bankruptcy case or not.

Hawaii laws also protect pensions and retirement accounts in full as follows: 

• IRAs and ERISA-qualified retirement accounts

• Firefighters’ pensions

• Police officers’ pensions

• Public officers’ & employees' pensions

Federal exemptions, by contrast, protect all types of retirement plan funds and accounts that are tax-exempt under the Internal Revenue Code. Federal laws limit IRAs & Roth IRAs to $1,512,350 (excluding rollover contributions), but this limitation could be lifted by a judge in the bankruptcy court.

Filing Chapter 7 Bankruptcy? 

There are many factors to consider when you’re thinking about filing bankruptcy. If you aren't sure which chapter to file or which exemptions, it may be helpful to meet with a Hawaii bankruptcy attorney to talk through your options. The good news is that most bankruptcy lawyers offer a free initial consultation, which can help you get legal advice tailored to your situation.

If it’s clear that you’ll be moving forward with Chapter 7 and you can’t afford to pay an attorney to assist you through the process, there are still resources available to help. If you're eligible, you can use Upsolve's free filing tool to file your Chapter 7 case.