Updated April 2022.
“What will they take?” Your Virginia bankruptcy exemptions answer that question.
When you file a Chapter 7 bankruptcy, the Chapter 7 trustee can take and sell your non-exempt assets. (The proceeds are used to pay your creditors.)
Most people don’t have “non-exempt” assets, so the trustee doesn’t take and sell anything. But that happy result often requires careful planning and detailed knowledge of Virginia bankruptcy exemptions law.
Bankruptcy law is established by the Federal government. But the law gives each state control of exemptions for your house and car, clothing and furniture.
Bankruptcy is set up by the Federal government, but the law gives each state control of many exemptions. Here’s a look at the Virginia bankruptcy exemptions–updated with the new law that took effect July 1, 2021.
Will they take my house?
The protection that bankruptcy law gives to your real estate is called your “homestead exemption.”
Your “homestead” Virginia bankruptcy exemption has long been $5000.00.
In June, 2015, Alabama raised their homestead exemption from $5,000 to $15,000. That left Virginia LAST of the fifty states.
Then, in 2020, that Virginia homestead was raised to $30,000.00. That’s found in Code of Virginia 34-4. That still leaves Virginia near the bottom of the 50 states.
That $30,000 homestead compares unfavorably to 100 acres of Texas, Or 160 acres of Florida. Or $250,000 in Colorado. If the bankruptcy trustee can take and sell your house, give you $30,000, and have money left over to pay your creditors, that’s what he is supposed to do. (That “homestead” exemption does go up another $5,000 for disabled veterans and seniors over age 65.)
Now Virginia does provide much better protection for married couples. Under “tenancy by entirety,” real estate that belongs to a married couple cannot be taken for the debts of only one. So a married couple can protect unlimited real estate equity, as long as they are not joint on credit cards or other debts.
What about my car? Or my truck? My tools?
Most places, you can’t get to work without a car. Many people owe more on their cars than it’s worth. But for those whose car is paid for, or almost paid for, Virginia bankruptcy exemption law allows you to protect $6,000 equity in your car. (You can also split that $6000 between two or more cars. That’s important for married couples who have both cars in one spouse’s name.)
Some people can also claim “tool of the trade” protection for a vehicle. If you are cab driver, your car is a tool of your trade. If you are a painter, then your truck, along with your ladders and brushes, are your tools. There’s a $10,000 Virginia bankruptcy exemption for tools.
The Virginia bankruptcy exemptions for cars and tools are pretty good, compared to many other states.
Other stuff
You are allowed to exempt most of your stuff. Your pets, your wedding and engagements rings, and your family bible.
Clothing up to $1000. Household furnishings, $5000. I’ve never seen a bankruptcy trustee be interested in people’s normal clothing–you’d have to sell a lot of it at yard sale prices to get to $1000. Somebody with a lot of electronics might have more than $5000 in household furnishings. In Northern Virginia, where I am, the bankruptcy trustees don’t have time to mess with that. In more rural parts of the state, I’ve sometimes heard of it.
Firearms, $3000.
What about money in the bank, retirements, places where there’s money?
Your retirement funds–401(k), 403(b), 457, IRA’s–are all exempt under Federal bankruptcy law and also the Code of Virginia. Virginia also exempts the retirements of state and local government employees.
The thrift savings plans of federal employees are protected by Federal law.
Cash value life insurance is protected, beginning July 1, 2016.
Tax refunds?
People with a lot of children and not a lot of money each year receive a “child tax credit” and “earned income credit” as part of their tax refund. Before July 2015, the Chapter 7 bankruptcy trustee could grab that. Now, it’s safe.
Alimony?
In the fall of 2014, the bankruptcy judge in Norfolk said that a bankruptcy trustee could wait around and intercept a divorced mother’s alimony payments, each month. The Virginia General Assembly protected unpaid alimony and child support, starting July 2015. (Special thanks to Del Scott Surovell, D-Fairfax, and Del Dave Albo, R-Fairfax, for getting this done.)
What about money in the bank?
The protection for your money in the bank depends on where it came from.
Your “wages’–including commission, bonus, almost anything–is three quarters exempt under Virginia law. That protection follows the money when it hits your bank account–as long as you can trace it. Having direct deposit really helps with that tracing.
Your Social Security is exempt, and keeps that exemption when it hits your bank.
Disability payments are protected under Virginia law exempting sickness insurance.
Money you receive as a result of a personal injury, typically a car accident, is exempt in Virginia.
If you have cash or investments that don’t fall into any of these categories, you can use that Virginia $5000 “homestead” if you don’t need it to cover your real estate equity.
College Savings plans
Money that’s been in a 529 college savings plan for your child or grandchild (not yourself) is exempt if it’s been there for more than two years. If it’s been there for more than one but less than two years, $5000 is exempt.
However, Virginia gives better protection for money in the Virginia 529 Plan–the specific 529 set up by the Commonwealth of Virginia. There’s no waiting period for the bankruptcy exemption to take effect under the law for the Virginia 529 plan.
PS: My mom “put my name on” her bank account
Under Virginia law, money in the bank belongs to the person who put it in. (Except husband and wife are 50-50.) So if mom put the money in, then it’s still protected, even if mom put your name on the account. (Now if mom is giving you the money, that would be a different story.)