Understanding Virginia’s Wildcard Exemption and Homestead Deed in Bankruptcy
When filing for bankruptcy in Virginia, one of the most misunderstood topics is Virginia’s wildcard exemption—often referred to as the VA Code 34-4 or homestead deed. This exemption plays a crucial role in protecting assets during a Chapter 7 or Chapter 13 bankruptcy. However, Virginia’s laws on exemptions are unique compared to many other states, and recent changes have made them even more complex.
If you are filing bankruptcy in Virginia and have cash/cash-like assets, it is important to understand:
- What Virginia’s wildcard exemption covers
- The role of a homestead deed
- How this exemption differs from other bankruptcy exemptions
- Key considerations when using the wildcard exemption
What Is the Virginia Wildcard Exemption?
Chapter 7 bankruptcy is often called liquidation bankruptcy because it allows a debtor to eliminate most unsecured debts while a court-appointed trustee reviews their assets to determine if any non-exempt property can be sold to repay creditors. However, many of Chapter 7 filers in Virginia keep all their assets because of exemptions—laws that protect certain property from being taken in bankruptcy. Exemptions cover essential items like a primary residence (up to $50,000 per owner),a vehicle (up to $10,000 in equity),etc.
If an asset is fully exempt, the debtor keeps it. However, if an asset is worth more than the exemption amount, the trustee may sell it and distribute the proceeds to creditors, unless arrangements are made to protect it, such as using multiple exemptions or negotiating with the trustee. Proper exemption planning is key to ensuring a smooth Chapter 7 process, and working with an experienced bankruptcy attorney helps maximize asset protection.
Virginia’s wildcard exemption allows individuals filing for bankruptcy to protect certain assets that may not otherwise be exempt under standard exemption laws. Unlike the tenants by the entirety protection (which only applies certain assets, and only to married couples with no joint unsecured debt) or the $10,000 vehicle exemption, the wildcard exemption is more flexible—it can be used to protect cash, bank accounts, stocks, tax refunds, personal property, and even real estate equity. The law limits the total amount of the exemption to be used both in and out of bankruptcy, but it renews every 8 years. As a result, if you use part or all the exemption outside of bankruptcy, the law limits your ability to use it in your bankruptcy case, if you file within 8 years of filing a homestead deed.
In addition to protecting nearly all types of assets, Virginia’s wildcard exemption can also be used to supplement other exemptions or could be stacked with other exemptions. For example, if you have a car with $12,000.00 in equity, you could use $10,000 of your vehicle exemption and $2,000 of your wildcard to ensure that all the equity is covered.
How Much Is the Wildcard Exemption?
- Every individual filing bankruptcy in Virginia is entitled to a $5,000 wildcard exemption to use on any asset (when using Virginia Bankruptcy Exemptions).
- If you are 65 or older, you receive an additional $5,000 wildcard exemption (for a total of $10,000).
- If you are a disabled veteran, you also receive an additional $10,000 wildcard exemption (totaling $15,000).
This exemption applies per person, meaning a married couple filing jointly could each claim their own wildcard exemption, potentially doubling their protected assets.
What Happened to the Homestead Deed Requirement?
Before July 1, 2020, Virginia required a homestead deed to be filed in the local land records office in order to claim the wildcard exemption in bankruptcy. This often led to unnecessary complications, as missing deadlines or filing errors could result in the loss of the exemption. Now, a homestead deed is only required, if you are using the exemption outside of bankruptcy.
Current Law:
- As of July 1, 2020, a homestead deed is no longer required when claiming the wildcard exemption in bankruptcy.
- This change simplified the process, but it’s still important to work with a bankruptcy attorney to properly list exemptions and maximize protection.
- Outside of bankruptcy, a homestead deed is still required if you want to use the wildcard exemption against creditors trying to garnish wages or levy bank accounts.
Wildcard Exemption vs. Other Virginia Bankruptcy Exemptions
Laws do not automatically protect assets in bankruptcy; a debtor must claim the asset as exempt on your schedules (and they assets must fall under a specific exemption category).
Here’s how the wildcard exemption compares to other key exemptions:
| Exemption Type | Amount | Can Be Used on Any Asset? |
|---|---|---|
| Wildcard Exemption | $5,000 per person ($15,000 if 65+ or disabled veteran) | ✅ Yes |
| Vehicle Exemption | $10,000 | ❌ No (Only for motor vehicles) |
| Tenants by the Entirety (TBE) | Unlimited, if no joint unsecured debt | ❌ No (Only for certain jointly owned property of married couples) |
| Household Goods Exemption | $5,000 | ❌ No (Only for household furniture, appliances, etc.) |
| Tools of the Trade | $10,000 | ❌ No (Only for professional tools/equipment) |
The wildcard exemption is especially valuable because it is one of the few exemptions that can be applied to cash, bank accounts, tax refunds, or any other assets that do not have a specific exemption.
Key Considerations When Using the Wildcard Exemption in Bankruptcy
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It’s Best Used for Non-Exempt Assets
- Since Virginia’s other exemptions (e.g., vehicle, tools of the trade) must be applied to specific property, the wildcard exemption should be used strategically on cash, bank balances, or tax refunds (other than child tax credits or earned income credits), which otherwise might not be protected.
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Planning is Crucial
- Example: If you receive a large tax refund right before filing (or it is earned, but not yet paid), it may be at risk unless you have wildcard exemption coverage or it is based primarily on earned income credit and child tax credit. An attorney can help time your filing or structure exemptions to protect it.
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Married Couples Can Double the Exemption
- If a husband and wife file jointly, they each get a separate wildcard exemption. This means they could shield up to $10,000 in total assets ($20,000 if both are 65+).
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Exemptions Depend on Residency History
- Virginia’s exemption laws apply only if you have lived in Virginia for at least two years before filing. If you recently moved, you may need to use the exemption laws of your previous state or federal exemptions.
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Filing for Chapter 13? Your Plan Payments Could Be Affected
- In Chapter 13 bankruptcy, your plan payments are partially based on the amount of non-exempt assets. If you have $8,000 in unprotected assets, you may need to pay creditors at least that amount over five years. Properly using the wildcard exemption can help lower required payments.
Common Misconceptions About the Wildcard Exemption
❌ Misconception: “I Don’t Need to List All My Assets If I’m Using Exemptions”
✅ Truth: A debtor must list every asset on their bankruptcy petition, even an exemption protects it. Failing to disclose assets can lead to serious legal consequences. There is no picking and choosing.
❌ Misconception: “I Can’t Use My Wildcard Exemption on Future Income”
✅ Truth: The wildcard exemption does apply to wages or future income, and it can protect money that’s already in your bank account at the time of filing. Additionally, there is another exemption in Virginia that protects 75% of earned wages
❌ Misconception: “If I Move Out of Virginia, I Lose My Wildcard Exemption”
✅ Truth: If you have lived in Virginia for at least two years, you qualify for Virginia’s exemptions—even if you move before filing bankruptcy. You may also use federal exemptions, if you have moved out of Virginia and are no longer a Virginia resident.
Final Thoughts: Maximizing Protection with the Wildcard Exemption
The wildcard exemption is one of the most powerful tools available to Virginia bankruptcy filers. Whether you are protecting bank balances, tax refunds, or other non-exempt assets, proper planning and strategy are crucial.
At Ashley F. Morgan Law, PC, we focus in helping clients navigate Virginia’s unique bankruptcy laws. Our team ensures you maximize exemptions while protecting your assets and financial future. If you’re considering bankruptcy, schedule a free consultation today to discuss your options.