An Update on the “Tool of the Trade” Exemption in Nebraska
I recently posted a blog that discussed lien avoidance and the “tool of the trade” exemption in Nebraska. The “tool of the trade” exemption was under fire after a local bankruptcy Judge ruled that a vehicle was no longer protected under the exemption if it was not used within the Debtor’s trade. Prior to the Judge’s October 2013 decision, vehicles were protected up to $2,400, even if the vehicle was used only to commute to work. As predicted, in January 2014, a bankruptcy judge reversed the October 2013 decision and upheld the application of the exemption. Therefore, the good news…a vehicle used to commute to and from work is again protected up to $2,400 without question!
Protect Tax Refunds with the Nebraska “wildcard” exemption
It is interesting how quickly things can change yet how slowly the law progresses. Most of the Nebraska state exemptions date back to the 1970s. Therefore, most assets are protected up to the reasonable value based at the time the statutes were enacted. The Nebraska Legislature is currently reviewing the statutes and may enact some major changes increasing the available exemptions.
One exemption that may change is the “wildcard” exemption. The wildcard exemption may be applied to any personal property and is extremely useful when a client has assets that do not fit under a current category of exemptions. For instance, this is a popular time of the year for tax refunds. Unfortunately, in Nebraska, tax refunds are not specifically protected. Therefore, the wildcard exemption is a handy tool to preserve potential tax refunds. Most individuals contemplating bankruptcy need the funds the government has been “saving” for them all year for necessities or to help get ahead by paying down a secured loan. Because the current wildcard exemption is only $2,500, people with tax refunds in excess of that amount are at risk of losing their refund when they file. If the wildcard exemption increases to $5,000 per person an, individual may no longer need to worry about the loss of needed funds when filing bankruptcy or a potential delay in filing. Hopefully, the exemption changes will pass through the Legislature. Stay tuned for additional updates…
Earned Income Credit (EIC) is 100% protected under bankruptcy law
As a point of clarity, it is important to know that to the extent that a tax refund is from the Earned Income Credit, that portion of the refund is 100% protected under bankruptcy exemption laws. As such, it is critical for a bankruptcy attorney to know exactly what part of the refund is truly just a return of withheld income taxes and what part, if any, is from the Earned Income Credit. The wildcard exemption is only needed to protect the non-EIC portion of the refund. Therefore, it is common to use two separate exemptions for one tax refund.
Please feel free to Contact me with questions.