Bankruptcy Exemptions – The Wildcard Exemption

The wildcard exemption is only available if you select the federal exemption scheme (as opposed to the Texas exemptions) (in other states, the federal exemptions may not be available, so check your state’s laws).  Where available, the so-called wildcard exemption can be very useful.  The exemption is found in Section 522(d)(5), and states as follows:

The following property may be exempted:

(1) The debtor’s aggregate interest, not to exceed $20,200 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.

. . .

(5) The debtor’s aggregate interest in any property, not to exceed in value $1,075 plus up to $10,125 of any unused amount of the exemption provided under paragraph (1) of this subsection.

Combined with §522(d)(1), section 522(d)(5), the wildcard exemption, allows a debtor who doesn’t use the federal homestead exemption to exempt over $10,000 in any property.  As a result, most people can retain all of their property in bankruptcy.

In Texas, the wildcard exemption is most useful for someone who doesn’t have much equity in his or her home.  If a debtor has significant equity in their homestead, then the Texas homestead exemption, which is virtually unlimited, is much more valuable.