Couples get more of a break with the federal exemptions now available for those filing bankruptcy in Oregon.
Our last few blog posts have introduced an important new Oregon law which now gives our residents the option of using the federal property exemptions when filing bankruptcy, instead of being limited to the set of exemptions under Oregon statutes.
These newly available federal exemptions favor married couples significantly more than the Oregon ones have done.
The new law also raises some other special issues relevant to married couples.
All Federal Bankruptcy Exemptions Are Doubled in Joint Filings
Under the Oregon set of exemptions, when a married couple files a joint bankruptcy case, some exemptions are doubled in value from the single person’s exemption amount, some are not increased at all, and some are increased less than double. For example, the “wearing apparel, jewelry, and other personal items” exemption of $1,800 for a single filer is doubled to $3,600 for joint filers, the “wildcard” exemption Is also doubled from $400 to $800, but the “household goods” exemption of $3,000 does not increase at all, while the homestead exemption only increases from $40,000 to $50,000 for joint filers.
In contrast, all of the federal bankruptcy exemptions are doubled in a joint filing. For example, the “household furnishings, household goods, wearing apparel” exemption of $12,250 is doubled in a joint filing to $24,500, the personal jewelry exemption of $1,550 is doubled to $3,100, and the homestead exemption of $22,975 is doubled to $45,950. Also very importantly, the regular “wildcard” exemption of $1,225 is doubled to $2,450, and then ALSO augmented by any unused homestead exemption up to a maximum of $11,500 for a single filer, totaling $12,725. When that added amount itself is doubled to $23,000 for joint filers, this results in a maximum potential wildcard exemption of $25,450 for a married couple. That sure beats the Oregon amount of only $800!
Greater Opportunity to File Chapter 7 Instead of Chapter 13
To the extent that a couple is induced to file a Chapter 13 case to protect an asset that would otherwise be taken by a Chapter 7 trustee, the new availability of the more generous federal exemptions may in some situations enable the couple to file a Chapter 7 case and not lose any assets.
This is best shown through an example. Consider a husband and wife who have no equity in their home, and own very little else except have each recently managed to pay off their vehicle loans so that they own two $12,000 vehicles free and clear. Those vehicles would be taken from them in a Chapter 7 case that was filed before the federal exemptions became available on July 1. The Oregon vehicle exemption of $3,000 can be used is available to each of them for their respective vehicles, but cannot be increased by even the modest $400 per person wildcard exemption. Nor can the wildcard or vehicle exemptions be increased by any unused homestead exemption. So this couple would have $9,000 too much value ($12,000 value minus $3,000 exemption) in each of their vehicles, or a total or $18,000. A Chapter 7 trustee would take and sell the vehicles, give the couple $3,000 each from the sale proceeds to cover the vehicle exemptions, and distribute the remaining $18,000 to the creditors, along with paying his or her trustee fees.
In contrast, with a Chapter 7 case filed on or after July 1, using the federal exemptions the vehicle exemption of $3,675 per person is increased first, by any unused regular wildcard exemption of $1,225, and second, by up to $11,500 per person in unused homestead exemption. That’s a total of up to $16,400 per vehicle, more than enough to protect the $12,000 in value in each vehicle in this example. As a result this couple would not need to file an asset-protecting Chapter 13 case, saving at least $18,000, and getting out of bankruptcy and rebuilding their credit years earlier.
In a Joint Filing, Can One Spouse Use the Oregon Exemptions and the Other the Federal Ones?
No. The bankruptcy statute makes quite clear that “[i]n joint cases filed . . by . . . debtors who are husband and wife, . . . one debtor may not elect to exempt property listed in [the federal bankruptcy exemptions] and the other debtor elect to exempt property listed in [the applicable state exemptions].” Section 522(b)(1).
How About Married Same-Sex Couples?
The above limitation against using separate exemption schemes by the two spouses refers to cases filed by “debtors who are husband and wife.” After the U.S. Supreme Court struck down the Defense of Marriage Act in June, this specific issue has not been addressed. But it seems unlikely that any gender-based distinction in the above bankruptcy statute would survive a constitutional challenge. Married same-sex couples likely must choose to use either the state or federal exemptions just like any “husband and wife.”