Washington State bankruptcy Exemptions will increase on July 23, 2023 helping consumers protect more of their personal assets such as vehicles, bank account balances and personal injury proceeds. I had the chance to discuss the new changes to the Washington State Bankruptcy Exemption laws on 1150Am KKNW and you can check out that segment here:
Bankruptcy exemptions are laws that allow consumers who file for bankruptcy, protection of assets up to a limited amount. There are states that allow for consumers to only use their states bankruptcy exemptions while others allow consumers to choose between state and federal exemptions. In order to use a state’s exemption, you must have resided or claimed that state as your domicile for at least two years prior to the filing of your bankruptcy case. If you are unsure of your domicile location two years prior to the filing of your case, courts will look to the 180 days immediately before the two years before the filing of your bankruptcy case. This can get complicated if you have moved around a lot or live abroad, in which case, you may have to use the federal bankruptcy exemptions which provide good protection for many assets, if you don’t own a home with a lot of equity.
In a chapter 7 bankruptcy case, debtors who qualify and file bankruptcy have their cases administered by a chapter 7 bankruptcy trustee whose job it is, is to liquidate and sell no non-exempt assets in order to pay unsecured creditors. They also receive a percentage of what they are able to take and sell, which is a sliding scale based on the amount of assets they recover for unsecured creditors. Alternatively, in a chapter 13 bankruptcy case, debtors may enter into a 3 to 5 year repayment plan where no assets are sold, but if they have non exempt assets, then that debtor must pay the liquidation value of that asset as part of their chapter 13 repayment plan. Debtors who do not want to risk losing an asset, may want to consider filing chapter 13 bankruptcy so long as they can afford the required repayment plan as there are no guarantees in a chapter 7 cases with regards to asset protection. Your bankruptcy attorney should be able to counsel you on the risks and likely outcome in your case.
Prior to Washington State amending their bankruptcy exemptions, Washington state bankruptcy exemptions lagged behind other states in terms of asset protection and with the increase in the cost of living in Washington, greater protections were needed. In Washington State, debtors who need to file for bankruptcy are allowed to choose between Federal bankruptcy exemptions and Washington State bankruptcy exemptions in order to protect assets up to a limited amount. If a consumer owns a home in Washington state that is their primary residence, then it is likely that that debtor will need to utilize the Washington State bankruptcy exemptions that provides protection for consumers who have owned such property for more than 1215 days up to the property locations county median sale value from the prior year. Median values for properties in Washington State or maintained by the University of Washington Center for Real Estate Research. In King County, where Seattle is located, the median sale value from 2022 was $913,400 providing a significant needed protection for debtors to protect their homestead in a bankruptcy case, as homes in the area have seen a significant increase in equity over the last decade. The homestead exemption was increased from just $125,000 in 2021, but did not address the protection of other personal property a debtor may have which for example only allowed for the protection of $500 in a bank account or $3,250 of equity in a vehicle.
The Fair Shot Act, also known as (SB 5173/HB1400) was signed into law by Washington State Governor Jay Inslee on May 9th, 2023 and will go into effect on July 23, 2023. The Fair Shot act ensures that Washington families and small business owners are protected from poverty and can maintain financial stability during tough times. Highlights of the Fair Shot Act include doubling personal property exemptions for a marital community, creating an unlimited exemption for personal injury proceeds, increasing the motor vehicle exemption from $3,250 equity protection per debtor to $15,000 per debtor and increasing the wildcard exemption to be used on any property from $3,000 (of which only $500 or $1,500 in cash is protected) to $10,000 per debtor.
These amendments are substantial and will now allow a debtor with a home with significant equity to not have to worry about losing a vehicle or not having enough money in the bank to cover rent if they need to file for bankruptcy in many cases. These updated Washington state bankruptcy exemptions can ensure Washingtonians that personal injury proceeds obtained for their support and well-being will be exempted as well.
In the past, debtors who had to utilize the state exemptions were easy targets for chapter 7 trustees to pursue nonexempt assets such as cash in the bank or a vehicle with equity of more than $3,250. Perhaps a debtor thought it was a good idea to pay off their auto loan thinking that it would benefit them in the future, but in the bankruptcy world, having a paid off asset puts the vehicle at greater risk of liquidation from a chapter 7 trustee. This is because paying off the loan creates equity. Moving forward the amended exemptions will allow debtors to protect their vehicles with over $15,000 available in protection and that amount is doubled for a married couple filing bankruptcy.
With these amendments, a debtor who does not own a home in Washington, may also choose to use the Washington state bankruptcy exemptions, which in the past was not something a debtor was likely to choose due to the state exemptions providing for very minimal protection outside of a homestead. With that said, the federal bankruptcy exemptions are still very generous and may still provide the best protection of a consumers assets.
With these changes, I would anticipate an increase in chapter 7 liquidation filings when compared to chapter 13 repayment plan filings, as many debtors who did not want to lose an asset would file chapter 13 bankruptcy to pay liquidation value of a particular asset that was at risk of being lost to a chapter 7 trustee. In many cases, that would be a car or cash in the bank that the updated exemptions are designed to address. While there was no automatic yearly adjustment to the exemption amounts like with the homestead exemptions, it is likely that Washington State debtors will benefit from the amended exemptions for years to come before another amendment will be necessary.
If you are considering filing bankruptcy in Washington and have questions about the Washington state bankruptcy exemptions, give Symmes Law Group a call at 206-682-7975 or contact us to get the counsel you need.