Most states only allow residents to apply their specific state’s exemptions to their property. However, Arkansas is one of 17 states that allows most residents to choose between the federal exemption scheme and exemptions allowed by Arkansas law. You can only apply one structure to your case, so it’s important to compare and contrast the benefits and drawbacks of each approach before committing to one or the other. As long as you’ve lived in Arkansas for at least 2 years, you can choose whichever approach will allow you broader bankruptcy protection for your property.
Written by Attorney Kassandra Kuehl.
Updated July 28, 2020
What are the Arkansas bankruptcy exemptions and why are they important in a Chapter 7 bankruptcy?
There are two primary types of bankruptcy available to individuals who don’t own a small business: Chapter 7 bankruptcy and Chapter 13 bankruptcy. If you don’t earn much income or valuable property, you’ll likely benefit more from filing Chapter 7 bankruptcy. This chapter of the Bankruptcy Code allows for eligible debts to be eliminated without being repaid. While the nonexempt property of Chapter 7 filers may be sold by a bankruptcy trustee to repay creditors,bankruptcy exemptions allow most low-income filers to protect most, if not all, of their property from this risk. As a result, it’s important to apply as many available bankruptcy exemptions as you can to your property so that you retain ownership of your assets even after your debt has been eliminated by the bankruptcy court.
Does Arkansas allow the use of federal bankruptcy exemptions?
Most states only allow residents to apply their specific state’s exemptions to their property. However, Arkansas is one of 17 states that allows most residents to choose between thefederal exemption scheme and exemptions allowed by Arkansas law. You can only apply one structure to your case, so it’s important to compare and contrast the benefits and drawbacks of each approach before committing to one or the other. As long as you’ve lived in Arkansas forat least 2 years, you can choose whichever approach will allow you broader bankruptcy protection for your property.
Arkansas Bankruptcy Exemptions
If you are married and are filing jointly with your spouse, it is important to note that you can generally double the exemption amounts listed below, as the values in this guide (unless otherwise noted) are available to single filers. Most states allow married couples filing jointly to benefit from two full “sets” of exemptions, subject to some exceptions. Arkansas is one of these states. Notably however, you can’t apply the “doubling rule” to property that is only owned by one spouse. This rule only applies to property that is jointly owned. In short, unless otherwise noted or the property in question is owned by one of you only, you can automatically double the exemption amounts listed below if you and your spouse are filing jointly.
Real Property - the Arkansas Homestead Exemption
If you are a landowner or you own your home, you’ll want to pay particular attention when comparing the advantages and disadvantages of claiming state exemptions and federal exemptions. The federal homestead exemption allows a single filer to safeguard up to $25,150 in equity in their primary residence. Equity is generally calculated by the value of property owned outright or the value of investment already made against a loan. For example, if a bank loaned you $45,000 to buy a home and you have paid off $20,000 of that loan, your equity in your home would be $20,000. By contrast to the federal homestead exemption, Arkansas state law allows filers to take advantage of an acreage-based homestead exemption: Specifically, filers may claim an unlimited amount of equity in 80 rural acres or one-quarter urban acre - up to a total equity value of $2,500 in value. If the land isn’t worth $2,500, the acreage exemption amount increases to up to 160 rural acres and up to one urban acre, also up to a total of $2,500 in equity value.
Personal Property Exemptions
Arkansas law allows filers to exempt a minimal amount of personal property. Unless otherwise noted, filers can exempt the full value of these types of personal property:
Health aids prescribed by a medical professional
Motor vehicle – up to $1,200 in equity in a single vehicle
Tools of trade required for your profession – up to $750 in value
Arkansas law does allow for the exemption of some benefits, insurance proceeds, and other monetary assets. Unless otherwise noted, filers can exempt the full value of these types of money benefits:
Crime victims’ compensation
Health insurance payments
Life insurance payments
Pension or retirement account – up to $20,000 in value
Tax-exempt retirement accounts, including 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined-benefit plans (11 U.S.C. § 522(b)(3)(C).)
Other Arkansas Exemptions
Arkansas does have a wildcard exemption, but it is very minimal. A wildcard exemption allows filers to exempt property that isn’t exempted by any other legal provision. A single filer in Arkansas is permitted to exempt $200 in additional property value. Married couples filing jointly and single individuals classified as “head of household” may claim a $500 wildcard exemption value.
It isn’t always easy to know at first glance whether you should claim Arkansas bankruptcy exemptions or federal exemptions. Therefore, it’s generally a good idea to compare the structure of each personal property exemption option before you decide which will best serve your family’s interests. Sometimes, low-income filers can protect the same amount of property by using either federal or state exemptions. However, there are times when choosing one option or the other will significantly affect the exemption amounts that filers are able to claim.
Please don’t forget that if you are a married person and are filing bankruptcy jointly with your spouse, the federal bankruptcy exemption amounts noted below are automatically doubled. For example, a single filer can claim the value of a motor vehicle up to $4,000, that exemption amount doubles to $8,000 for filers who are married and filing jointly.
Perhaps the most significant thing to keep in mind if you’re thinking about using federal exemptions is that this structure honors a homestead exemption of up to $25,150 for a single filer. If you don’t need to use that total value to protect the value of an urban homestead, rural homestead, or other eligible real estate, up to $12,575 of the remaining available homestead exemption may be applied to alternative personal property of your choice.
Please note that these federal exemptions figures for additional assets will remain current until April 1, 2022 when they’ll be routinely updated:
Alimony or spousal support (total value)
Child support (total value)
Crime victims’ compensation (total value)
Disability, illness, or unemployment insurance benefits (total value)
Health aids and other health equipment (total value)
IRAS and Roth IRAs (up to $1,362,800)
Jewelry (up to $1,700)
Life insurance policy (loan value up to $13,400)
Life insurance policy for a lost loved one you depended on, which you currently need for support (total value)
Lost earnings payments (total value)
Public assistance and other public benefits (total value)
Personal injury recovery (up to $25,150 – exceptions made for pain and suffering, as well as pecuniary loss)
Personal property: Animals, appliances, books, clothing, crops, furniture, household goods, and musical instruments (up to $625 per item, up to $13,400 overall)
Retirement accounts that are tax-exempt: 401(k)s, 403(b)s, defined benefit plans, money purchase plans, profit-sharing plans, SEP and SIMPLE IRAs (total value)
Social Security benefits (total value)
Tools of Trade: Books, implements, and tools of the trade (up to $2,525)
Veteran’s benefits (total value)
Unmatured life insurance policy except credit insurance (total value)
Unemployment compensation (total value)
Wildcard ($1,325 total plus unused homestead exemption value up to $12,575)
Wrongful death recovery for loss of an individual you depended on for financial reasons (total value)
Filing Chapter 7 bankruptcy?
After digesting all of this information, you still may be unsure about whether you’ll benefit more from applying Arkansas exemptions or federal bankruptcy exemptions. You may even be unsure of whether you want to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. That’s okay. Upsolve can help you connect with an Arkansas bankruptcy attorney located in Fayetteville, Little Rock, or elsewhere in “The Natural State” at any time. Most bankruptcy lawyers offer free consultations, so there’s really no reason not to schedule a one-time meeting that will allow you access to some experienced legal guidance. With that said, if you can’t afford to work with a law firm over time, know that Upsolve provides many free resources online for filers preparing their cases “pro so” (without a lawyer’s help). Upsolve may even be able to help you file your bankruptcy case for free.