New Exemption Laws for Washington, DC, Maryland, and Virginia

Local DC, MD and VA Exemption Laws

(March 2008)

The District of Columbia Code was updated in 2000 to provide broad exemptions for all District of Columbia debtors. The exemption laws were patterned after the federal bankruptcy exemptions (11 U.S.C. § 522) but they are much more generous to the debtor in three important areas:

1. Without limitation, all of a debtor’s interest in "real property used as the residence of the debtor" is exempt (footnote 1) District of Columbia Code, §15-501(a)(14);

2. The D.C. law now exempts all recovery for personal injury (footnote 2). District of Columbia Code, §15-501 (d)(11)(D).

3. Individual Retirement Accounts (IRAs) are finally exempt for debtors in the District of Columbia (footnote 3). District of Columbia Code, § 15-501(a)(9). (IRAs have been fully exempt in Maryland, but have only a limited exemption in Virginia according to the statutory formula.)

The new exemption laws are available to all debtors who are District of Columbia residents whether in bankruptcy or not. However, if a bankruptcy is filed, the debtor must decide whether to use the federal bankruptcy law exemptions or the District of Columbia exemption law. They may not use both.

In the past, the choice was relatively simple. D.C. exemption law was antiquated and parsimonious, while the federal law was more generous with one exception. The federal law authorized the partition of property held as tenancy by the entirety while the use of the smaller D.C. exemptions would protect the tenancy by the entirety property from creditors of only one spouse. Today the local law is far more generous than the federal bankruptcy exemptions except that the federal contain slightly larger dollar amounts because they are indexed annually, while the D.C. exemption figures are fixed.

Here is a brief summary of the exemption laws available in the District of Columbia, Maryland, Virginia and Federal Bankruptcy.

A. District of Columbia

After being adopted on June 24, 2000

§ 15-501 of the DC Code adds new exemption categories and greatly increases the amount of the exemptions as this partial listing illustrates.

Unlimited exemption for real property used as a residence. §15-501(a)(14)
Interest in one motor vehicle up to a value of $2,575. § 15-501(a)(1)
Household and personal items valued up to $425 per piece to an aggregate of $8,625. §15-501(a)(2)
Aggregate interest in any property valued at $850 plus unused value from §501(a)(14) up to $8,075. § 15-501(a)(3)
Tools, supplies and library used for business up to a value of $1,925. §§ 15-501(a)(4) and (a) (13)
Un-matured, non-credit life-insurance. § 15-501(a)(5)
Professionally proscribed health aides. § 15-501(a)(6)
Family pictures and books up to $400. § 15-501(a)(8)
Assets in all retirement accounts including IRA's up to the maximum allowed contribution.
§ 15-501(a)(9)
Three months provisions. § 15-501(a)(12)
Unlimited recovery for personal injury. § 15-501 (a)(11)(D)
Implements of a professional person or artist up to $300. § 15-501(a)(13)

B. State of Maryland

§ 11-504 of the current Maryland Code provides the following exemptions to debtors:

Wearing apparel, tools, books and other requirements of trade profession valued up to $5,000. § 11-504(b)(1)
Unlimited recovery for accident, injury or death. § 11-504(b)(2)
Professionally prescribed health aids for the debtor or their dependent. §11-504 (b)(3)
Household items including furniture, clothing and pets held primarily for personal use up to a value of $1,000. § 11-504(b)(4)
Property of any kind valued at up to $6,000 if exemption claimed within 30 days of attachment or levy. § 11-504(b)(5)
Aggregate interest in real or personal property of up to $5,000 (limited to bankruptcy proceedings). § 11-504(f)
Interest in any retirement plan. § 11-504(h)

C. Commonwealth of Virginia

The following exemptions are among those permitted by the Virginia Code:

Real and personal property for householder up to $5,000 plus $500 more for each dependent. § 34-4
Family bible, wedding and engagement rings. § 34-26(1) and (1a)
Family portraits and heirlooms up to $5,000 in value. § 34-26(2)
Burial lot and a funeral contract valued up to $5,000. § 34-26(3)
Clothing up to $1,000. § 34-26(4)
Household furnishings up to $5,000. § 34-26(4a)
All pets which are not for sale. § 34-26(5)
Medically prescribed health aids. § 34-26(6)
Tools, books, machinery and vehicles necessary for profession up to a value of $10,000. § 34-26(7)
A motor vehicle other than for work valued at up to $2,000. §34-26(8)
Unlimited personal injury or wrongful death proceeds. § 34-28.1
Certain retirement benefits. § 34-34

D. Federal Bankruptcy

Section 522 of the Bankruptcy Code (11 U.S.C. 101, et seq.) provides a broad list of exemptions. Unlike the state exemptions, which may be used in or out of bankruptcy, federal exemptions are only available to the debtor that has filed bankruptcy and properly claimed the exemption. Additionally § 522 is indexed annually while the DC exemptions are fixed.

It must be noted that the Bankruptcy Code permits states to "opt out" and allow their state exemptions to be used for a federal bankruptcy filing. However, even with an opt out, the state exemptions may be limited by some of the federal statutes such as the exemption limitation for the debtor's residence. Locally, Maryland and Virginia have opted out but the District of Columbia has not. In a DC bankruptcy a debtor may use either the District of Columbia or the federal exemptions, but not both.

Some of the important federal bankruptcy exemptions are:

Interest in a residence for either the debtor or their dependant of up to $20,200 11 U.S.C. § 522 (d)(1)
Interest in a motor vehicle valued up to $3,225. § 522 (d)(2)
Household items and personal effects valued at no more than $525 per item and totaling together no more than $10,775. § 522 (d)(3)
Personal jewelry up to $1,350. § 522(d)(4)
Aggregate interest in additional real or personal property valued at $1,075 plus up to $10,125 of unused value from the residence exemption. § 522 (d)(5)
Receipt of various benefits (footnote 4) including alimony, pension plan and social security. § 522(d)(10)
Any unmatured life insurance contract. § 522(d)(8)
Receipt of property from varying sources including payments for wrongful death, lost wages, or life insurance. § 522 (d)(11)
Recovery for personal injury up to $20,200. § 522 (d)(11)(D)
Individual Retirement Accounts not to exceed $1,095,000.

E. Comparison of Exemption Laws
In the D.C. Metro Area

The following charts describe the major exemptions available in the three jurisdictions and the Bankruptcy Code exemptions.

COMPARISON OF MAJOR EXEMPTIONS

Asset	D.C.	Asset	Maryland*

Residence Coops	100% subject to the holding requirement and $ cap if in bankruptcy.	Any real or personal property (Wild card)	$6,000 of cash or property of any kind and $5,000 of real or personal property
Motor Vehicles	$2,575	Any real or personal property (Wild card)
Personal Property (General) Wearing Apparel Furnishings	$8,625	Personal Property for trade or business	$5,000
Library, PicturesAny Property (Wild card)	$850 plus up to $8,075of unused amount for residence	Personal Property for personal, family or household use	$1,000
Library, PicturesAny Property (Wild card)	$850 plus up to $8,075of unused amount for residence	IRA	100%
Wages Principal Non-principal		Life Insurance Proceeds dividend, interest, loan value	All proceeds to Dependent Beneficiaries
Trade Implements, tools	$1,625	Tenancy by Entirety Protection (unless both tenants are liable)	Yes
Office & Professional	$300
IRA	100%
Life Insurance Proceeds dividend, interest, loan value	100%
Personal Injury Proceeds	100%
Tenancy by Entirety Protection (unless both tenants are liable)	Yes

*MD Code Section 11-504

COMPARISON OF MAJOR EXEMPTIONS
Asset	VIRGINIA*	Asset	Bankruptcy Code 522(d)* (as of March 2008)

Real and Personal Property (Wild card)	$5,000 + $500 per dependant	Real and Personal Property (Wild card) Coops	$20,200
Motor Vehicles	$2,000	Motor Vehicles	$3,225
Wearing Apparel	$1,000	Personal Property	$525 max per item; $10,775 total plus $1,075 and up to $10,775 of unused portion of $20,200 for real or personal property.
Furnishings	$5,000
Household, etc.	$5,000	Jewelry	$1,350
Trade Implements Tools	$10,000	Trade Implements Tools Office & Professional	$2,025


IRA	Unlimited if the only retirement plan. Partial if other plans plus an IRA.	IRA	$1,095,000 unless reasonably necessary for support
Life Insurance Proceeds. dividend, interest, loan value	Group & Non-profit policies	Life Insurance Proceeds	$10,775
Life Insurance Proceeds. dividend, interest, loan value	Group & Non-profit policies	dividend, interest, loan value	Unlimited
Personal Injury Proceeds	100% Unlimited	Personal Injury Proceeds	$20,200
Tenancy by Entirety Protection. (unless both tenants are liable)	Yes	Tenancy by Entirety Protection. (unless both tenants are liable)	No
	Yes		No
*VA Code Section 34-26-34; 34-4		*Indexed annually 11 U.S.C. Section 522(d)

Conclusion

Clearly, the most important change in the D.C. Code is the addition of the unlimited residence exemption. Whatever the current housing market, we may expect an even greater interest in and demand for D.C. residential real estate. Real estate sales personnel and builders may think they have died and gone to heaven as more entrepreneurial risk takers rush to establish their residences in the District. Yet it must be realized that this new and generous exemption is not merely a gift for the profligate. For years tenancy by the entirety has protected the home and other property of married debtors. This new exemption only levels the playing field. Now, all debtors have an opportunity to protect their residence whether married or not. This reflects a sound social policy.

The current bankruptcy bill caps the homestead exemptions in bankruptcy at $136,875 for residential property not held 1215 or more days before the bankruptcy filing. However, even if you have lived in your home less than the required 1215 days, there is still hope if you moved to your current residence from another home, purchased prior to the 1215 day window. If you purchased your last home more than 1215 days before filing for bankruptcy, and that home was located within the same state as your current residence, any interest transferred from that old residence to the new one is exempt without limit. This bill may slightly dampen the unlimited exemption, but for those residents that can avoid filing bankruptcy, the unlimited exemption is still available without any 1215 day holding period. The D.C. home is not only a person’s castle but also a treasure trove and a retirement plan. It sure beats the stock market.

March 2008