Last year, more than 8,000 Nevadans filed for bankruptcy under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. Bankruptcy is a legal process through which Americans struggling with overwhelming debt can obtain some relief. At the end of the process, the debtor receives a bankruptcy discharge, which is a court order terminating his or her obligation to repay any remaining unsecured debts (like credit card debt).
But many Nevadans who could benefit from filing bankruptcy are reluctant to do so, believing that they will have to give up some, most, or all of their property. Fortunately, the Bankruptcy Code is not so severe. Instead, it lets debtors use exemptions to protect some—and in most cases, all—of their property.
This post explores the basics of Nevada bankruptcy exemptions, including how they work in Chapter 7 and Chapter 13 cases and what exemptions are available for debtors in Nevada.
What are Bankruptcy Exemptions?
Nevada bankruptcy exemptions play an important role in the bankruptcy process, whether you file under Chapter 7 or Chapter 13. However, what that role is varies between these two types of bankruptcies. Understanding how the exemptions function in each requires first understanding how the two Chapters differ from each other.
Exemptions in Chapter 7 Bankruptcies
Bankruptcy under Chapter 7 of the Bankruptcy Code is known as “liquidation.” That’s because the bankruptcy trustee is supposed to take all of the debtor’s non-exempt property and “liquidate”—i.e., sell—it, using the proceeds to pay back as much as possible to his or her creditors.
That’s where bankruptcy exemptions come in: The trustee can only sell a debtor’s property if that property does not qualify for an exemption. If some piece of property does qualify, then the debtor gets to keep it throughout the bankruptcy process.
Fortunately, most Chapter 7 cases are what are known as “no asset” cases, in which all the property owned by the debtor is covered by one exemption or another. In short, that means that in most Chapter 7 bankruptcies, the debtor gets his or her discharge without having to give up any property.
Exemptions in Chapter 13 Bankruptcies
Chapter 13 bankruptcies are quite different. When a debtor files for bankruptcy under Chapter 13, he or she will not have to sell any property, regardless of whether it is exempt or non-exempt. Instead, the debtor creates a repayment plan under which he or she will pay some amount to creditors for the next three to five years.
At the end of that time, the debtor receives a discharge.
In this kind of bankruptcy, the exemptions are used in calculating how much the debtor must pay to his or her unsecured creditors under the repayment plan. The Bankruptcy Code requires that creditors in a Chapter 13 bankruptcy be no worse off than a creditor in a Chapter 7 bankruptcy. So, the value of non-exempt assets (which would be sold in a Chapter 7 filing) is included in that calculation—but exempt assets are not.
Overview of Nevada Bankruptcy Exemptions
With this basic understanding of the role of bankruptcy exemptions in mind, we can now turn to a discussion of what exemptions are available in Nevada. Even though the Bankruptcy Code is a federal law that applies throughout the nation, it lets each state define what bankruptcy exemptions are available to its residents.
In some states, bankruptcy debtors are allowed to choose between a set of exemptions defined by the Bankruptcy Code or a set of exemptions defined under state law. However, in Nevada, debtors must use the state’s exemptions, because it has “opted out” of the federal bankruptcy exemptions.
Finally, note that if a married couple files bankruptcy jointly, each spouse is entitled to claim the full set of exemptions, subject to some exceptions. For example, the spouses can only claim one homestead exemption, to which we now turn.
Homestead: Up To $550,000 In Equity
Often most importantly, Nevada law provides an exemption for a debtor’s homestead. This can be a person’s house, mobile home, unit in a common-interest community, or condominium. However, the homestead exemption only applies up to $550,000 in equity. Equity is the difference between the value of a person’s home and the amount of any debts secured by it.
For example, if you own a home worth $650,000, but owe $75,000 on a mortgage, your equity is $555,000. Because that’s equal to the exemption limit, your home could qualify for the homestead exemption.
Motor Vehicle: Up To $15,000 In Equity
In general, a debtor in Nevada can exempt one motor vehicle, but only if his or her equity in the vehicle is no more than $15,000. However, if the vehicle is equipped or modified to provide mobility for a person with a permanent disability, then it is exempt regardless of equity.
Wages: 75% of Disposable Earnings or 50x Minimum Wage
You can also exempt some or all of your wages. Specifically, you can exempt the greater of:
- 75% of your disposable earnings; or
- An amount equal to 50 times the federal minimum wage.
Retirement Accounts: Varies
State employees’ retirement accounts are fully exempt in bankruptcy under Nevada law. For private employees, federal law provides certain non-bankruptcy exemptions that, despite being called “non-bankruptcy exemptions,” apply in bankruptcies nationwide. Most types of tax-exempt retirement accounts are exempt without limit. IRAs and Roth IRAs are exempt up to $1,283,025.
Other Specific Personal Property: Varies
Nevada law exempts many other specific types of personal property up to varying limits on equity. These include:
- All family pictures and keepsakes;
- Private libraries, works of art, musical instruments, and jewelry up to $5,000;
- Up to $12,000 in necessary household goods, furnishings, electronics, clothing, other personal effects, and yard equipment;
- Farm tools, vehicles, equipment, and stock up to $4,500;
- Professional libraries, equipment, supplies, tools, inventory, and materials used to carry on the debtor’s trade or business to a value of $10,000;
- Any arms, uniforms, and accoutrements required by law to be kept by any person, plus one gun selected by the debtor; and
- Many others.
Finally, a debtor can exempt any property not covered by a specific exemption up to a value of $1,000.
How a Las Vegas Bankruptcy Lawyer Can Help You Protect Your Property
As the discussion above demonstrates, Nevada law exempts a wide variety of property in the bankruptcy process. But without a thorough understanding of what exemptions are available in the state, you can easily miss them, giving up property that you could have kept or otherwise harming your case.
Fortunately, you don’t have to scour the Nevada Revised Statutes for yourself to fully benefit from the Nevada bankruptcy exemptions. An experienced Las Vegas bankruptcy lawyer can guide you through the entire bankruptcy process, including by pointing out what exemptions can shield your property and designing a strategy to maximize your exemptions.
Haines & Krieger is a Las Vegas bankruptcy law firm with years of experience helping struggling Nevadans get a fresh start through the bankruptcy process. If you would like more information about how filing bankruptcy could help get your finances in order or how best to protect your property using Nevada bankruptcy exemptions, contact us today for a free consultation.