Don't overlook the value of state exemptions (NJ, maybe others)

[catleg]

I point this out because I live in NJ where 99%+ of debtors file under the federal exemptions.

However the state has some generous exemptions:

all proceeds from group disability and health insurance
all proceeds from life insurance
all proceeds from unemployment benefits

Because of BAPCPA if you elect the state exemptions (any state), you also get
federal non BK code exemptions (i.e. Social Security Act)
plus all retirement plan exemptions (IRA,401k,etc) to 1,095,000.

Back when home equity was an issue the federal exemptions made sense especially to strip off any pesky judgment liens. But with home values static or dropping in many areas you may be protecting nothing.

But consider what happens if you die and you or your spouse dies during the 60 months of a chapter 13 or the 6 months post discharge. The trustee is going to claim the insurance proceeds if you choose the federal exemptions.

That's a big risk to take for 5 1/2 years, especially if you have kids.

If you're in a ch13 just because of high income, and you don't have equity in secured property to protect,
take a second look at your state exemptions, it might be better for you with a minimal cost.

Looks like Pennsylvania is roughly the same

[keepsmiling]

Good points, thanks for mentioning.
I'm in NJ and had no idea.
Due to being in my home a loooong time, I will need federal....and have to hope values don't rise .... Yeesh I hope the hub doesn't drop dead within 6 months of filing. I did not know they could take the insurance proceeds. That's just.... wrong. I thought it was just inheritances?

[kornellred]

I do not see how the trustee can take life insurance proceeds. Life insurance is an expense - not an asset.

[catleg]

It becomes an asset of the beneficiary when you die.
If the beneficiary is in bankruptcy ... not good
11 USC 541 (a): (property of the estate)
(5) Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date—
(A) by bequest, devise, or inheritance;
(B) as a result of a property settlement agreement with the debtor’s spouse, or of an interlocutory or final divorce decree; or
(C) as a beneficiary of a life insurance policy or of a death benefit plan.

[keepsmiling]

According to nolo:
Exemptions also come into play when you are the beneficiary of a life insurance policy. State law determines the amount of your exemption for life insurance proceeds if you live in a state that has opted out of the federal exemption scheme. If you live in a state that has not opted out, you can elect to use the federal exemption scheme. Under federal law:
You may exempt proceeds received under a life insurance policy that are reasonably necessary to support you and your dependents. The policy must be on the life of a person who supported you as a dependent.
You also may utilize the “wild card” exemption – $1,150, plus $10,825 of any unused homestead exemption.

[Pjmax]

I'm in NJ also. I specifically asked my atty. why use Fed. Exemptions over NJ, and his answer was; for most people the Fed. exemptions overall are better. So, I guess if you have a specific issue where the state exemptions might help, you might lose more in other areas that the Fed. exemptions address. We all like to hope our attorney knows best, but it's always worthwhile to ask about all your options.

[keepsmiling]

I do believe NJ also allows you to exempt Earned Income Credit
So generous really. Since they pretty much expect you to live in a box.