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Nebraska Bankruptcy Exemptions and Law
If you are a Nebraska resident and unable to pay the debts you owe, bankruptcy could protect you from creditors. Bankruptcy offers people an option for ridding themselves of overwhelming debt and starting over without worrying about being harassed or sued by bill collectors. Additionally, Nebraska has enacted state laws that let residents protect some of their assets from creditors during bankruptcy.
The U.S. Bankruptcy Courts are federal courts governed by the U.S. Bankruptcy Code. However, federal law allows states to write their own rules regarding what property their residents can protect from creditors. Nebraska has chosen to implement its own rules on exempt property, which is the property you are allowed to keep to help you get on with your life after bankruptcy.
Some states will let you choose between the state law exemptions and the federal exemptions provided in the Bankruptcy Code. However, Nebraska is not one of them. If you file for bankruptcy in the state you must use the Nebraska exemptions.
Exemptions play an important role in the bankruptcy process, but how they work depends on which type of personal bankruptcy you file for:
- Exemptions can play a major role in Chapter 7 because they can determine to a large extent how much of your property you keep. Plus, you will usually exit bankruptcy free from nearly all of your debt. But you must first meet strict income thresholds to qualify.
- Chapter 13 bankruptcy lets people who have a steady income reorganize most of their debt and pay it off in three to five years. The payments are made under a court-approved plan that usually eliminates some of your debt. Chapter 13 is popular with homeowners because they can often keep their homes.
Both types of personal bankruptcy grant an automatic stay issued by the court when you file. The stay stops almost all creditor collection activity, including foreclosures and court cases. This prevents collection agencies from harassing you and gives you the breathing room you need to resolve your debt problems.
Secured vs. Unsecured Debt
When you declare bankruptcy your debts will usually be categorized as secured or unsecured. The designation is significant because the two types of debt are treated differently in Chapter 7 and Chapter 13, which will dictate how much debt you can eliminate.
Debt is considered to be unsecured when a creditor has no right to repossess your property for failure to pay. Credit card debt, court judgments, and medical debt are among the most common types of unsecured debt.
Since your unsecured creditors hold no collateral for their debts, unsecured debt is the most likely to be eliminated through bankruptcy. But some priority unsecured debts, like child and spousal support, can't be discharged in bankruptcy.
A secured creditor has the right to repossess your property if you do not repay what you owe. Secured debt is often the result of a loan transaction where you signed a contract giving your lender the right to seek a lien on the property you put up as collateral if you don't pay.
Since secured creditors retain their right to repossess the property in bankruptcy, you will usually need to give up the property or work out a payment plan with the creditor. Home mortgages and car loans are among the most common types of secured debt.
How Secured and Unsecured Debt Work in Bankruptcy
When you file for Chapter 7 bankruptcy you can usually discharge most of your unsecured debt. However, secured debt is treated differently and can rarely be eliminated in a Chapter 7 case. Usually, you will need to choose from one of the following options:
- Return the property to the creditor. If you choose this option you will lose the property, but you will usually be free from making additional payments.
- Keep the property and continue making payments. This is sometimes possible when a state or federal exemption covers your equity in the item.
- Purchase the property outright. This is rare in Chapter 7 cases because people who file under this chapter usually lack the assets to purchase the property.
Chapter 13 bankruptcy lets you create a plan to repay your creditors over three to five years. The court must approve your plan and may force creditors to reduce or restructure your debt. Your mortgage payments will not be included in the plan, but the trustee may negotiate a payment agreement with the lender if you are behind on your payments.
In Chapter 13, unsecured creditors are paid with the disposable income left over after you have repaid your secured creditors. Any unsecured debt not paid under the plan is discharged when the plan has finished.
In Nebraska, like all states, you must show that your income is low enough to qualify for Chapter 7. This is usually done using one of two means tests.
The first means test is simple: If your household income is less than the median household income for similarly sized households in your state, you qualify. For example, U.S. Census data shows that the median income for a three-person household in Nebraska was $85,929 in November 2020. That means if you live in a three-person household that has less than $85,929 in income, you will qualify to file under Chapter 7 in Nebraska.
If your household income is above the Nebraska median you can still qualify under Chapter 7 based on your disposable income. Your monthly disposable income is calculated by subtracting your monthly expenses from your monthly income. If the calculation shows that you have little disposable income each month, you can file under Chapter 7.
To file under Chapter 13 you will need to show that you have a steady income and unsecured debt of no more than $419,275. Your secured debt cannot total more than $1.26 million.
Nebraska's exemption system is important to a Chapter 7 bankruptcy. If your income falls within one of the exemptions, you can protect it from creditors during bankruptcy and use it to start over when you are finished.
When a married couple files for bankruptcy together in Nebraska each spouse is usually allowed to claim an exemption if they own the property together. However, this “doubling" of the state's exemptions does not apply to the homestead exemption.
Nebraska lets you exempt up to $60,000 of the equity you have in your home. This amount is the same whether you file for bankruptcy along with your spouse or by yourself. If you sell your home, the first $60,000 in proceeds from the sale will be exempt for up to six months after the sale.
The exemption is limited to two or fewer lots if the home is located in a city or village. The maximum is 160 acres if it is located elsewhere.
The head of household may exempt up to 85% of unpaid wages; 75% of earned but unpaid earnings; or 30 times the federal minimum wage. In some situations, a judge may allow you to keep more of your wages.
Personal Property Exemption
Nebraska lets you keep all of your immediate personal possessions, necessary clothing, and prescribed health aids. It also lets you keep up to $1,500 in home furnishings and household goods.
You may keep up to $2,500 in select personal property, other than wages. The wildcard exemption may be added to another exemption to increase the size of the exemption you are allowed for that item. At one time you could not use the wildcard exemption if you claimed the homestead exemption, but the law was changed in 1997 to allow everyone to claim it.
Motor Vehicle and Tools of the Trade Exemption
Most states will provide an exemption for some of the equity you may have in your motor vehicle. Unfortunately, Nebraska only allows a $2,400 exemption if you use the vehicle for your business or to commute to work. This exemption can also be applied to any tools and implements used in your trade or profession.
Insurance Benefits Exemption
The following insurance benefits are exempt:
- A maximum of $100,000 of the loan value for the proceeds of a life insurance policy or an annuity.
- Up to $10,000 of the loan value for fraternal benefits from a fraternal benefits society.
Pension and Retirement Exemptions
Most pension and retirement plans are exempt in Nebraska, including:
- Tax-exempt retirement accounts such as 401(k)s, IRAs, and defined benefit plans
- State, county, and school employee retirement benefits
- Military disability benefits, not exceeding $2,000
Public Benefit Exemptions
- Social Security benefits
- Unemployment compensation
- Workers' compensation
- Earned income tax credit
- General assistance to the poor
- Aid to the blind, aged, or disabled
- Personal injury or wrongful death awards and structured settlements.
- Burial plots, crypts, tombs, niches, or vaults
If you are filing for bankruptcy anywhere in the U.S. you must first complete a counseling course within 180 days of filing. The course is designed to help you assess whether you can pay your debts outside of bankruptcy.
If you plan to file under Chapter 13, you may be asked to prepare a repayment plan during the course to file with the court. You must file a course completion certificate along with your bankruptcy filing.
When you file without an attorney, you will begin the bankruptcy process by finding and downloading the correct forms for the U.S. Bankruptcy Court for the District of Nebraska. The instructions included with the form will let you know which additional forms and documents apply to your situation and must accompany your petition.
It will cost you $338 to file for Chapter 7 bankruptcy in Nebraska and $313 to file under Chapter 13. The fees are the same if you represent yourself (known as appearing “pro se") or if you hire an attorney. If you can't afford the filing fee, you can ask to pay in installments over 120 days. If you earn less than 150% of the poverty line you can request that the fee be waived.
Need Help Filing for Bankruptcy in Nebraska?
If you are having trouble paying your bills, hiring an attorney to represent you in bankruptcy may seem like an expensive luxury when you could file on your own. However, even simple bankruptcy cases can involve complex court filings and meeting strict deadlines. An experienced local bankruptcy attorney will help guide you through the filing process, represent you in court, and negotiate with creditors to ensure that you retain as many of your assets as the law allows.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.