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New Oregon Law for the First Time Makes Available the Generous Federal “Wildcard” Exemption

As of July 1, 2013, Oregon residents can protect assets when filing bankruptcy which could not be protected earlier.

Our blog post last week introduced a new Oregon law which, for the first time in at least 32 years, now allows our residents to choose between using the Oregon exemptions to protect their assets or instead the federal exemptions contained in the Bankruptcy Code. Up until now, Oregon residents were stuck with just the Oregon exemptions.

If you had to pick the single federal exemption that will help the most people, it’s likely the wildcard exemption. That’s especially true for people who either don’t own their own home or don’t have any equity in their home.

What’s a “Wildcard” Exemption?

Most exemption schemes—including both the Oregon and federal ones—consist of a list of various types of assets (or property) that can be protected, usually with a maximum dollar amount for each type of asset. Like it sounds, a “wildcard” exemption can be used to protect any of your assets that are not protected already by another exemption. Depending on 1) the amount of the “wildcard” exemption and 2) how flexibly it can be used, it can make a huge difference because it can protect assets that the rest of the exemptions either don’t refer to at all or the dollar amount for that type of property is too low.

The Oregon vs. Federal Wildcard Exemptions

The federal wildcard exemption is so much better than Oregon’s because 1) it’s many times larger, especially when increased by the unused homestead exemption “spillover, and 2) it can be flexibly “stacked” onto other exemptions.

The Oregon wildcard exemption is $400, which is doubled to $800 for a joint bankruptcy filing by a husband and wife. The federal basic wildcard exemption is $1,225, doubling to $2,450 for joint filers.

“Spillover” Allowed to Increase Federal Wildcard Exemption

But these federal wildcard amounts—already more than three times as large as the Oregon ones—are hugely increased if you do not use your homestead exemption, or not all of it. Whatever portion of the homestead exemption that you do not use can “spillover” onto the federal wildcard exemption, up to a maximum of $11,500 per person. This means that the federal wildcard exemption can be as large as $12,725 per person ($1,225 + $11,500), or $25,450 for joint debtors.

“Stacking” Allowed with Federal Exemptions

These comparatively large amounts on the federal side—potentially $12,725 per person vs. only $400 for the Oregon wildcard—would not be nearly as helpful if the federal wildcard had an “anti-stacking” restriction like Oregon does. The Oregon statute on the wildcard exemption states that “this exemption may not be used to increase the amount of any other exemption.” That means that even as small as the Oregon wildcard exemption is, it can’t be used to provide greater protection to any asset that has a designated exemption. In total contrast, the federal wildcard exemption can be used for this kind of added protection.

An example will make this clearer. Assume Elizabeth own a vehicle free and clear worth $10,000, owns a home that has no equity (the amount of the mortgage(s) exceed its value), and everything else she owns (furniture, clothing, jewelry, household and personal items) is worth less than the applicable exemptions.

Under the Oregon exemptions, she would be entitled to a $3,000 vehicle exemption, leaving the remaining $7,000 of equity unprotected. Even the wildcard exemption of $400 could not be “stacked” onto that for a bit more protection. Under Chapter 7 Elizabeth would have to pay the bankruptcy trustee about $7,000 to keep her vehicle. Or she could file a Chapter 13 case to pay at least that amount over three to five years for the same purpose.

But now under the newly available federal exemptions, besides being entitled to a somewhat larger $3,675 federal vehicle exemption, she could “stack” the federal wildcard exemption onto this vehicle exemption. Since Elizabeth doesn’t have any equity in her home and so doesn’t need the homestead exemption, $11,500 can “spillover” onto the usual $1,225 wildcard exemption, for a total $12,725 wildcard. That added to the regular $3,675 vehicle exemption is more than enough to cover her $10,000 vehicle. Elizabeth can file a Chapter 7 case and have her vehicle protected without worry.

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