Posted On: April 18, 2017
Posted by: Joshua McCloud
Last updated May 18, 2017.
While the United States has mostly come out of the Great Recession, Alaska is still experiencing its own due to a steep drop in oil prices and resulting budget crisis in 2015. According to a recent economic confidence survey, Anchorage residents are feeling more pessimistic about the local economy today than they have in years — but a bit more confident that their personal finances can help them weather the storm.
Despite a positive outlook centered on their own wallets versus the state’s, Alaskans are still struggling. More than 9,000 jobs have been lost over the past year alone, all while state government is proposing an income tax and raising existing taxes. How will residents pay for it all?
For Alaskans straining under the weight of accumulated debt, federal law offers relief through the process of bankruptcy. The U.S. Bankruptcy Code, found in Title 11 of the U.S. Code, governs that process. The Bankruptcy Code offers several options for individuals, businesses, and others to restructure or eliminate their debts.
One of the most popular options among individuals is a Chapter 7 bankruptcy. This post provides important background information for Alaskans considering filing a Chapter 7 bankruptcy, but readers should always consult with a qualified Alaska attorney before doing so.
How does Chapter 7 bankruptcy work?
In a Chapter 7 bankruptcy, the case trustee will gather all the debtor’s non-exempt property, sell it, and use the proceeds of the sale to pay as much of the debtor’s debts as possible. After this process, the debtor will be discharged from liability for any remaining unsecured debts (subject to some significant exceptions, such as student loan and tax debt).
Note that the bankruptcy trustee is only allowed to liquidate non-exempt property in a Chapter 7 bankruptcy. Some property is exempt from the liquidation process, but what property qualifies for an exemption depends on which state’s laws apply in a given bankruptcy case.
Even though the Bankruptcy Code is a federal law that applies nationwide, it gives states authority to decide what property will be exempt when their residents file for bankruptcy. Some states (called “opt-out” states) provide a list of exempt assets in their own laws and require bankruptcy debtors to use those state-law exemptions. Other states provide a list of exempt assets in their own laws, but permit the debtor to choose whether to use that list or the list that Congress included in the Bankruptcy Code.
Who can file for Chapter 7 bankruptcy in Alaska?
Technically, any debtor who is eligible for Chapter 7 and who has lived in Alaska for most of the last six months can file for Chapter 7 bankruptcy there. But just because a debtor files for bankruptcy in one state doesn’t mean that that state’s list of exemptions will apply. Instead, the Bankruptcy Code prescribes a test to determine which state’s exemption laws apply in a Chapter 7 bankruptcy.
If the debtor has lived in the state where he or she filed for bankruptcy for the past two years, then that state’s laws will be used. Otherwise, the bankruptcy court will use the laws of the state where the debtor resided for most of the six months immediately prior to that two-year period. (For an example of how this test works, see our article on bankruptcy exemptions.)
Alaska vs. Federal ExemptionsThe top 5 exemptions under Alaska law compared to federal law.
|Type of exemption||Alaska law||Federal law|
|Homestead||$72,900 of equity in principal place of residence||$23,675 of equity in principal place of residence|
|Personal property||$4,050 aggregate value on household goods and clothing, $3,780 in tools of the trade/instruments, $1,350 in jewelry, $1,350 in pets||$12,625 aggregate value on household goods, plus federal wildcard exemption applicable ($1,250 plus $11,850 of any unused portion of your homestead exemption)|
|Vehicle||$4,050, if the full value of the motor vehicle does not exceed $27,000||$3,775|
|Wages||Weekly earnings up to $473||Income you've earned but not yet received becomes part of your bankruptcy estate|
|Pension/retirement||Unlimited, except for contributions made within 120 days before filing bankruptcy||Exempt, with a cap of about $1.28 million on IRAs and Roth IRAs|
What are the Alaska bankruptcy exemptions?
Debtors whose bankruptcy cases use Alaska law under the test described above can choose to use the federal exemptions included in the Bankruptcy Code or the state exemptions defined in the Alaska Exemptions Act. However, a debtor cannot use both or mix and match state and federal exemptions.
Example: Dennis owns a house worth $50,000 (with no mortgage) and household goods worth $10,000. If he files for Chapter 7 bankruptcy, he cannot exempt the house under Alaska’s higher exemption amount while exempting the household goods under the higher federal exemption amount. He must either choose to use Alaska’s exemptions for both, or to use the federal exemption for both.
Much of the property listed in the Bankruptcy Code and the Alaska Exemptions Act is only exempt up to a certain value. Importantly, the limits on value apply to the value of a debtor’s equity in the property, not necessarily the full value of the property. The debtor’s equity in a piece of property is the difference between the value of the property and the amount of debt secured by it. If the debtor’s equity in exempt property exceeds the exemption amount, the exempt property may be sold by the trustee. In such cases, the trustee will return a portion of the sales proceeds equal to the exemption amount to the debtor.
Important note: The values listed in the U.S. Bankruptcy Code and Alaska Exemptions Act are outdated, because both the federal government and Alaska routinely adjust those amounts for inflation, but they do not update their statutes. The current amounts under the Bankruptcy Code can be found in a notice published by the Judicial Conference of the United States in the Federal Register. The current amounts under the Alaska Exemptions Act can be found in a regulation published by the Alaska Department of Labor and Workforce Development.
The following is a comparison of some of the major exemptions under the Alaska Exemptions Act and the U.S. Bankruptcy Code:
Alaska allows an exemption for an individual’s principal residence — that is, the individual’s home. Currently, the homestead exemption is limited to a value of $72,900. In contrast, the federal homestead exemption is limited to a value of $23,675.
Alaska allows an exemption for one motor vehicle up to a value of $4,050, but only if the full value of the vehicle is less than or equal to $27,000.
Example: Frank chooses to use the Alaska exemptions in his Chapter 7 bankruptcy case. He owns a car worth $26,000, but he owes $25,000 on it. Because his equity in the car is only $1,000, and the car is worth less than $27,000, his car is exempt. If his car were worth $28,000, it would not be exempt, even though his equity would only be $3,000 in that case.
Federal law provides an exemption for one motor vehicle up to a value of $3,775.
Other Personal Property
Alaska also exempts other items of personal property. Household goods, clothing, books, musical instruments, family portraits, and heirlooms are exempt up to an aggregate value of $4,050. Jewelry is exempt up to an aggregate value of $1,350. Also exempt are implements, professional books, and tools of the trade, up to an aggregate value of $3,780. Finally, Alaska law exempts pets up to a value of $1,350.
Federal law exempts household furnishings, household goods, clothing, appliances, books, animals, crops, and musical instruments. That exemption only applies up to a value of $600 for any one item, and up to an aggregate value of $12,675 for all such items. Jewelry is exempted up to an aggregate value of $1,600. Implements, professional books, and tools of the trade are also exempt up to an aggregate value of $2,375.
For most people, Alaska law exempts a limited amount of income. In general, weekly net earnings are exempt up to $473, but slightly different amounts apply when a debtor is not paid weekly. Under federal law, wages that are earned but not paid when a bankruptcy case is filed are not exempt.
Alaska provides an unlimited exemption for pensions and retirement plans. However, any contributions made to the retirement plan within the 120 days before the debtor filed for bankruptcy are not exempt. Federal law exempts tax-exempt retirement accounts, but only exempts IRAs and Roth IRAs up to a value of $1,283,025.
Other Exempt Property
On its website, the U.S. Bankruptcy Court for the District of Alaska maintains a list of some of the most commonly used exemptions in Alaska bankruptcy cases.
Where are the bankruptcy courts in Alaska?
Whether you choose to use Alaska bankruptcy exemptions or federal, all bankruptcy cases in Alaska are filed in the U.S. Bankruptcy Court for the District of Alaska. It has offices in Anchorage, Fairbanks, and Juneau.
Street Address: 605 W. Fourth Ave., Suite 138, Anchorage, AK 99501
Telephone: (907) 271-2655
Toll-Free: (800) 859-8059
Street Address: 101 12th Ave., Room 332, Fairbanks, AK 99701
Telephone: (907) 456-0349
Toll-Free: (866) 243-3813
Street Address: 709 W. Ninth Ave., Room 979, Juneau, AK 99802
Telephone: (907) 271-2655
Toll-Free: (800) 859-8059