What Are the Connecticut Bankruptcy Exemptions?

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

It's a myth that filing for Chapter 7 bankruptcy requires individuals to sell most of their property to pay their creditors back. Exemption laws allow Chapter 7 filers to protect most, if not all, of their property. If you file for bankruptcy, your exempt property will remain yours. The trustee can't touch it. That's why it’s important to apply as many exemptions as you can to your assets. Depending on the kind of property you own, you may benefit from claiming Connecticut exemptions or federal exemptions.

Does Connecticut Allow Filers To Use Federal Bankruptcy Exemptions?

Connecticut is one of 17 states that allows most residents to choose between the state's exemptions and federal exemptions. You can't cherry-pick exemptions from both sets of exemptions, so it’s a good idea to compare how much property you can protect under each. That way, you’ll be able to make an informed choice about which to use. Unless you’ve lived in Connecticut for less than 2 years, you can pick whichever set of exemptions works best for you.

Connecticut Bankruptcy Exemptions

When you’re reviewing the Connecticut exemptions outlined below, keep in mind that if you’re filing for bankruptcy jointly with your spouse, you can claim double the amount of the exemption values listed (unless otherwise noted) as long as the property you’re seeking to exempt is co-owned. If only one spouse owns the property, you’ll only be able to claim the single filer exemption value listed.

Real Property: The Connecticut Homestead Exemption

The homestead exemption allows homeowners and property owners to safeguard the equity in their primary residence. If you’re a homeowner, you’ll likely want to claim Connecticut exemptions, as its homestead exemption allows you to protect up to $75,000 in equity in your home (or $150,000 if you're married and filing jointly). The federal homestead exemption only protects up to $27,900 in equity.

Equity is calculated by subtracting what's left on your home loan from the current market value of your home. For example, if your home is worth $200,000 and you still owe $150,000 on your mortgage, you have $50,000 in equity. This would be protected under the Connecticut state exemption.

If you’re not a homeowner, you’ll likely want to claim federal exemptions because you can use a significant portion of the homestead exemption to safeguard other property if you don’t need to protect a residence. In fact, you can apply up to $13,950 of an unused homestead exemption to otherwise nonexempt property of your choice.

Personal Property Exemptions

Connecticut's personal property exemptions are more generous than federal exemptions. You'll want to factor this in when weighing which set of exemptions to use. It may make sense for you to use state exemptions and claim generous personal property exemptions and a generous homestead exemption. Or it might be better to use the federal exemptions so you can use the wildcard exemption and add an unused portion of the homestead exemption, which can go to protect personal propertry.

Unless otherwise noted, the following Connecticut personal property exemptions cover the full value of the assets listed:

• Appliances, bedding, clothing, food provisions, and household furniture – classified as “necessary,” so items of exceptional value or quantity may be treated as nonexempt

• Arms, equipment, uniforms, and instruments for military personnel and militia members

• Burial plot for filer and filer’s immediate family

• Health aids (necessary)

• Insurance proceeds for damaged exempt property

• Motor vehicle – up to $3,500 in equity for a single vehicle (single filer) and up to $7,000 in equity for a single, shared vehicle (married filing jointly)

• ·Wedding and engagement rings

Additionally, the Connecticut “tools of the trade” exemption is farm-specific. It protects necessary tools, books, and farm animals necessary for the filer’s farming occupation. A separate exemption safeguards farm partnership animals and livestock reasonably required to operate a farm at which 50% or more of the partners are members of the same family.

Money Benefits

In addition to protecting tangible assets, Connecticut law allows filers to exempt certain monetary, benefits-based, and insurance-related assets. Unless otherwise noted, the following Connecticut money benefits exemptions cover the full value of the assets listed:

• Alimony or spousal support (subject to the wages exemption calculation noted below)

• Child support

• Crime victims’ compensation

• Health and disability insurance payments

• Interest in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the filer under which the insured is the filer or the filer’s dependent (not to exceed $4,000)

• Pensions for municipal employees, state employees, and teachers

• Public assistance

• Residential and utility security deposits for one residence

• Spendthrift trust funds necessary for the support of filer and resident family members

• Social Security benefits

• Transfers to a licensed debt adjuster

• Unemployment compensation

• Workers’ compensation

Other Connecticut Exemptions

Connecticut offers a modest $1,000 wildcard exemption. You can use the wild card exemption to protect any nonexempt property. It may be nonexempt because it's not covered by an exemption or because it has a higher value than is covered by available exemptions.

The federal wildcard exemption is higher at $1,475. And remember, if you opt to use federal exemptions and you don't use the homestead exemption, you can use up to $13,950 as a wildcard exemption to protect property of your choosing.

Federal Exemptions

Connecticut bankruptcy exemptions aren’t the best option for all filers. Sometimes, it makes more sense to apply federal exemptions to a bankruptcy case. You won’t know which set of exemptions will be best for you until you compare the amount of property you’ll be able to protect by using state exemptions versus federal exemptions.

Under federal law, the federal exemption figures are updated every three years. The following numbers are current as of April 1, 2022.

If you're married and filing jointly, note that the bankruptcy exemption amounts you can apply to your case are automatically doubled. For example, if you own a car, the federal Bankruptcy Code allows a single filer to exempt the value of a motor vehicle up to $4,450. However, if you’re married and filing jointly, the motor vehicle value exemption available to you and your spouse increases automatically to $8,900. Keep this in mind when assessing the figures noted below.

If you use federal exemptions, the following will be fully protected:

• Alimony or spousal support

• Child support

• Crime victims’ compensation

• Disability, illness, or unemployment benefits

• Health aids and other health equipment

• Life insurance policy for a lost loved one you depended on, which you currently need for support

• Lost earnings payments

• Public assistance and other public benefits

• 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

• Social Security benefits

• Veteran’s benefits

• Unmatured life insurance policy except credit insurance

• Unemployment compensation

• Wrongful death recovery for loss of an individual you depended on for financial reasons

Under federal exemptions, the following items are exempt up to the listed amounts:

• IRAS and Roth IRAs up to $1,512,350

• Jewelry up to $1,7875

• Life insurance policy with a loan value up to $14,875

• Personal injury recovery up to $27,900 with exceptions made for pain and suffering and pecuniary loss

• Personal property: Animals, appliances, books, clothing, crops, furniture, household goods, and musical instruments up to $700 per item, up to $14,875 overall

• Tools of Trade: Books, implements, and tools of the trade up to $2,800

• Wildcard: $1,475 total plus unused homestead exemption value up to $13,950

Filing Chapter 7 Bankruptcy? 

If you aren't sure which exemptions to use or whether filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy is the best option for your circumstances, you can have a free consultation with a bankruptcy attorney. Upsolve may also be able to help you file your Chapter 7 bankruptcy case for free.