When a resident of Virginia begins the bankruptcy process, one of the first terms they encounter is “exemptions.” Exemptions are certain kinds of property that have been designated by the state legislature as beyond the reach of creditors. In other words, exempt property cannot be seized by a creditor or by the bankruptcy trustee to satisfy a debt owed by the debtor.
Exemptions can be a complex topic for debtors with significant assets, but one asset usually dominates the use of exemptions: the family residence. Virginia does not have a specific exemption for the homestead. Rather, it provides a catchall exemption of up to $5,000 in value of any type of property as exempt from the claims of all creditors. This exemption may be applied to any type of property, and most debtors in Virginia use it to protect the homestead. The exemption increases to $10,000 when a person reaches the age of 65. The exemption increases by $500 for each dependent.
In the recent legislative session, a specific exemption for the homestead of $25,000 was created. The debtor retains the existing base amount of $5,000 and an additional $500 for each dependent. Debtors over the age of 65 are entitled to a base exemption of $10,000. The legislature also removed the lifetime cap on the exemption; the homestead exemption will renew every eight years.
The potential uses for the aggregate exemption are many: as noted, many debtors use the exemption to protect equity in their homestead. Other uses include protecting retirement plans, savings account, and portions of wages and earnings that might otherwise be subject to garnishment.
Anyone considering bankruptcy should review the subject of available exemptions with an experienced bankruptcy lawyer. A skilled bankruptcy attorney can explain all exemptions available to the debtor and how those exemptions may be most beneficially applied.