What Are the Rhode Island Bankruptcy Exemptions?

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

Some Americans hesitate to file bankruptcy because they’ve heard the myth that they'll lose all of their property. But thanks to bankruptcy exemptions, the majority of Chapter 7 bankruptcy filers don't lose anything but their debt. Exemptions are essentially protections. They allow bankruptcy filers to keep certain property and assets during and after the bankruptcy process.

Does Rhode Island Allow Filers To Use Federal Bankruptcy Exemptions?

When you fill out your bankruptcy petition, you’ll also choose which exemptions to apply to your property. Rhode Island bankruptcy law allows residents who've lived in the state for at least two years to claim either state exemptions (plus the federal nonbankruptcy exemptions)or federal exemptions. You may be able to exempt the same amount of property under both schemes, depending on what you own. But some filers benefit significantly by choosing one approach over the other.

You can't cherry-pick exemptions from both sets of exemptions, so it’s important to compare and contrast the exemption types and amounts allowed under both schemes. That way, you can make an informed decision about which will serve you best.

Rhode Island Bankruptcy Exemptions

Some exemptions cover the full value of a piece of property or an asset. Others cover up to a certain amount. The amounts listed throughout are for single filers. But if you're married and filing jointly with your spouse, you can double almost all of the exemptions listed that apply to jointly owned property. One exception is the homestead exemption. Keep this doubling rule in mind as you read the rest of this article if you're married.

Real Property: The Rhode Island Homestead Exemption

If you're a homeowner, chances are Rhode Island's homestead exemption will serve you better than the federal equivalent. The federal homestead exemption protects up to $27,900 in equity for single filers, but Rhode Island's exemption protects up to $500,000 of equity for a principal residence.

The only condition attached to this generous exemption is that you must be living on the property or intend to live on the property when you claim the exemption. In this context, equity is the fair market value of your home minus what you still owe on the mortgage (plus any second mortgages or liens you have on the home). So if your home is worth $600,000 and you still owe $500,000 on it, you have $100,000 in equity, which would be fully covered by the state exemption amount.

Personal Property Exemptions

Unless otherwise noted, filers may claim the full value of the personal property exemptions listed below. If you own personal property that isn’t listed here, you may be able to safeguard it using the wildcard exemption, which we'll explain later in this guide. Note that most of the values listed below are calculated using “yard sale pricing,” so they’ll stretch to accommodate a great deal of property:

• Bibles and books up to $300

• Burial plot

• Clothing

• Household furniture, goods, and supplies up to $9,600 – note that married couples can’t double this particular exemption

• Jewelry up to $2,000

• Library of a practicing professional

• Motor vehicle up to $12,000 in equity in a single vehicle

• Tools of the trade used for work up to $2,000

Money Benefits

In addition to protecting real property and tangible property, exemptions can protect monetary assets, insurance coverage, and various benefits. Unless otherwise noted, the following monetary benefits may be exempted in full under Rhode Island law:

• Accident or sickness insurance proceeds or benefits

• Benefits for the blind, elderly, and disabled

• Crime victims' compensation

• Earned but unpaid wages for active military members and sailors

• Earned but unpaid wages for non-military members and sailors (up to $50)

• Earnings of minor children

• ERISA-qualified benefits

• Firefighter and police officers’ benefits

• Fraternal benefit society benefits

• General assistance

• Life insurance policy proceeds (if it explicitly states that it can't be used to pay creditors)

• Prepaid or savings educational tuition account

• Private employee benefits

• Property belonging to a business partnership

• Retirement accounts as provided by federal law

• State and municipal employee benefits

• State disability benefits

• Tax-exempt retirement accounts

• Temporary disability insurance

• Unemployment compensation

• Veteran’s disability or survivor’s death benefits

• Wages of a spouse or minor children (for up to one year after receiving public benefits or amounts paid by a charitable organization or fund providing low-income relief)

• Workers' compensation

Other Rhode Island Exemptions

Rhode Island also offers a wildcard exemption of up to $6,500. Meaning, if you have property that you haven’t been able to exempt using the provisions noted above, you can exempt an additional $6,500 in value using this wildcard exemption. This provision may be used to protect real estate, personal property, and/or monetary assets.

Federal Exemptions

As previously noted, if you’ve lived in Rhode Island for at least two years, you’re allowed to claim either Rhode Island bankruptcy exemptions or federal bankruptcy exemptions. Before you determine which structure will be more financially advantageous, you’ll need to compare and contrast the benefits and drawbacks of each approach.

Note that like state exemption laws, federal law allows married couples filing jointly to double their exemption amounts for jointly owned property, unless otherwise noted. Also keep in mind that federal exemptions are updated every three years. The following figures are current as of April 1, 2022.

Federal bankruptcy law provides a homestead exemption of up to $27,900. If you don’t need to claim that total value for home equity or you’re not a homeowner, you can apply up to $13,950 of the homestead exemption to other property that isn’t exempted elsewhere.

The following items are exempt in full under the federal Bankruptcy Code:

• Alimony or spousal support

• Child support

• Crime victims’ compensation

• Disability, illness, or unemployment insurance 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

• Social Security benefits

• Veteran's benefits

• Unmatured life insurance policy except for credit insurance

• Unemployment compensation

• 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

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

The following items are exempt up to the listed amount:

• IRAS and Roth IRAs up to $1,512,350

• Jewelry up to $1,875

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

• Motor vehicle equity up to $4,450

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

  pain and suffering

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

Filing Chapter 7 Bankruptcy? 

If you aren't sure whether you should claim Rhode Island bankruptcy exemptions or federal bankruptcy exemptions, you can ask for guidance at no cost. Most bankruptcy attorneys offer free consultations to prospective clients. These no cost meetings allow both Chapter 7 bankruptcy and Chapter 13 bankruptcy filers to get legal advice without obligation.

If you're filing a simple Chapter 7 bankruptcy case, you may be able to file for free using Upsolve's filing tool.