One of the most important questions that must be answered when a resident consults an attorney about filing a bankruptcy petition is what exemptions should be used. Both state law and federal law permit debtors to declare certain assets exempt from creditors' claims in a bankruptcy proceeding, but the two lists are not identical. Moreover, a debtor must choose between a federal exemption and the state exemption for particular assets.
For most debtors, their house is their largest asset. Federal law permits a debtor to declare $25,000 of their homestead to be exempt from creditors' claims. Tennessee law allows a debtor to exempt $5,000 of real estate or $7,500 for joint owners. Married couples who are both 62 years of age may exempt $25,000.
State and federal exemptions for personal property are significantly different. Federal law permits an exemption of up to $3,675 for motor vehicles. Tennessee law does not permit such an exemption. Each law enumerates the kinds of personal property that can be made exempt: federal law specifies clothing, appliances, musical instruments and furnishings up to a total of $12,250; an additional $1,550 is allowed for jewelry. Tennessee law allows exemptions for bibles, schoolbooks, pictures and clothing.
Both laws permit retirement accounts to be exempt. Public benefits, such as Social Security and public assistance, are exempt under both laws. Both statutes permit implements, books and tools of trade to be exempt; the federal limit for this exemption is $2,300, and the state limit is $1,900. Alimony and child support are exempt under federal law, but not under Tennessee law.
The state has a "wildcard" exemption that allows the debtor to declare an additional $10,000 worth of personal property to be exempt. The federal wildcard exemption is limited to $1,225 of any property and unused portion of homestead value up to $11,500.
Choosing between federal and state exemptions depend on the specific circumstances of the individual debtor. The advice of an experienced bankruptcy attorney can provide crucial assistant in making these decisions.
Source: Tn.gov, "Tennessee's Homestead Exemptions - Adjusting Them to Reflect the Cost of Living," accessed on Jan. 20, 2018