If you are considering bankruptcy in Nebraska, one of the first and most important questions is what property you can keep. Bankruptcy exemptions answer that question. Exemptions are laws that protect certain assets from being taken by creditors or a bankruptcy trustee. Understanding how Nebraska bankruptcy exemptions work is essential before filing any case.
Nebraska has opted out of the federal bankruptcy exemption system. That means Nebraska residents must generally use Nebraska exemptions, not the federal list. The good news is that Nebraska exemptions are strong in several key areas, particularly for homes, vehicles, household goods, and certain income-based benefits.
This article explains the major Nebraska bankruptcy exemptions most people rely on when filing Chapter 7 or Chapter 13. It focuses on the exemptions that matter most in real cases: the homestead exemption, vehicle exemption, earned income credit, household furniture, and the wildcard exemption.
How Bankruptcy Exemptions Work in Nebraska
Bankruptcy exemptions protect the value of property, not the property itself. If an asset’s equity falls within the exemption limit, it is fully protected. If the equity exceeds the exemption, the excess value may be at risk in a Chapter 7 case.
Nebraska exemptions are found primarily in Neb. Rev. Stat. §§ 25-1552 through 25-1556 and §§ 40-101 et seq. Some exemptions are located in other parts of Nebraska law.
In Chapter 7, exemptions determine whether a trustee can sell an asset. With Chapter 13, exemptions affect how much must be paid to creditors through the repayment plan. In both chapters, accurate exemption analysis is critical.
Nebraska Homestead Exemption
For many filers, the most important exemption is the homestead exemption.
Under Neb. Rev. Stat. § 40-101, a Nebraska resident may exempt a homestead of up to $120,000 in equity. The homestead includes the residence where the debtor lives, along with the land on which it sits, subject to acreage limits.
The exemption applies to:
- A house
- A mobile home
- Certain types of residential property used as a primary residence
Married Filers and the Homestead Exemption
When both spouses file bankruptcy and jointly own the home, each spouse may claim the homestead exemption. In many cases, this effectively doubles the protection. This is often a key planning point for married couples considering bankruptcy.
What the Homestead Exemption Does Not Protect
The homestead exemption protects against unsecured creditors and bankruptcy trustees. It does not eliminate:
- Valid mortgages
- Property tax liens
- Certain statutory liens
If the home has significant equity beyond the exemption amount, a Chapter 13 case may be used to protect the property instead of Chapter 7.
Nebraska Motor Vehicle Exemption
Nebraska law allows a debtor to exempt equity in one motor vehicle.
Under Neb. Rev. Stat. § 25-1556, a debtor may exempt up to $5,970 in equity in a motor vehicle. Equity is calculated by subtracting any loan balance from the vehicle’s fair market value.
This exemption applies to:
- Cars
- Trucks
- Vans
- Motorcycles used for personal transportation
Practical Application of the Vehicle Exemption
In many real cases, vehicles are fully protected because loan balances reduce equity below the exemption cap. Even paid-off vehicles are often exempt depending on age and condition.
If a debtor owns multiple vehicles, only one may be protected by the motor vehicle exemption. Additional vehicles may require use of the wildcard exemption or a Chapter 13 filing strategy.
In joint married cases, each debtor gets to claim the exemption for one, different vehicle. It cannot be doubled onto a single vehicle.
Retirement Accounts and Pension Exemptions in Nebraska
Retirement savings receive some of the strongest protection available under both Nebraska law and federal bankruptcy law. In most cases, properly structured retirement accounts and pensions are fully exempt in bankruptcy.
Qualified Retirement Accounts
Under federal bankruptcy law, tax-qualified retirement accounts are exempt without dollar limitation. This protection applies in Nebraska bankruptcy cases and includes accounts governed by the Internal Revenue Code.
Common exempt retirement accounts include:
- 401(k) plans
- 403(b) plans
- 457 governmental plans
- Profit-sharing plans
- Defined benefit pension plans
These accounts are protected so long as they are tax-qualified and have not lost their qualified status. Funds must generally remain in the account to retain protection.
IRAs and Roth IRAs
Traditional IRAs and Roth IRAs are also exempt in bankruptcy, subject to a federal cap that is periodically adjusted for inflation. The exemption applies to funds that are traceable to contributions and earnings within the account.
Rollovers from qualified employer plans into IRAs typically remain fully exempt, provided they are properly documented and kept segregated.
Nebraska Pensions and Public Employee Retirement Plans
Nebraska law separately protects many pensions and retirement benefits under Neb. Rev. Stat. § 25-1563.01 and related statutes. This includes retirement benefits payable to public employees and certain private pensions.
Protected benefits often include:
- State and local government pensions
- Teacher retirement systems
- Law enforcement and public safety pensions
These benefits are generally exempt from execution, garnishment, and bankruptcy administration.
Important Limitations and Planning Issues
Retirement exemptions do not protect:
- Contributions made with intent to hinder, delay, or defraud creditors
- Excessive or unusual pre-bankruptcy contributions
- Funds withdrawn and commingled with non-exempt assets
Timing and documentation matter. Improper withdrawals before filing can turn fully exempt retirement funds into non-exempt cash.
Practical Impact in Bankruptcy
For most filers, retirement accounts and pensions are completely protected and do not need to be surrendered or paid to creditors. This allows individuals to eliminate unsecured debt without sacrificing long-term financial security.
Because retirement exemptions are powerful but technical, they should be reviewed carefully before filing, especially if recent rollovers or withdrawals have occurred.
Nebraska Bankruptcy Exemptions: Earned Income Credit Exemption
The earned income credit is a frequently overlooked but highly valuable exemption.
Nebraska law treats the earned income tax credit as exempt property. Both state and federal earned income credits are generally protected from creditors and bankruptcy trustees.
This exemption is grounded in Neb. Rev. Stat. § 25-1553, which exempts certain public assistance benefits and tax credits intended to support low- and moderate-income families.
Timing Matters
The earned income credit exemption can apply even if the refund has not yet been received at the time of filing. Proper planning and accurate schedules are essential to preserve this exemption.
For families who rely on tax refunds, protecting the earned income credit can make a significant difference in financial recovery after bankruptcy.
Nebraska Bankruptcy Exemptions: Household Furniture and Goods Exemption
Nebraska provides strong protection for ordinary household items.
Under Neb. Rev. Stat. § 25-1556, household furnishings, appliances, clothing, books, animals, crops, and musical instruments are exempt up to specified aggregate values. These exemptions are designed to protect items reasonably necessary for day-to-day living.
Examples of protected items include:
- Beds, couches, tables, and chairs
- Kitchen appliances
- Clothing and personal effects
- Televisions and electronics of ordinary value
Real-World Valuation
In bankruptcy, household goods are valued at garage sale or resale value, not replacement cost. Most used furniture has little resale value and is fully exempt in practice.
Trustees are not interested in normal household items. The exemption exists to prevent unnecessary hardship and to allow people to maintain a basic standard of living.
Nebraska Wildcard Exemption
The wildcard exemption provides flexibility when other exemptions fall short.
Nebraska allows a $5,970 wildcard exemption under Neb. Rev. Stat. § 25-1552. This exemption may be applied to any personal property. In joint married cases, this amount is doubled, which creates a significant exemption to protect property.
The wildcard exemption is commonly used to protect:
- Cash or bank account balances
- Tax refunds not otherwise exempt
- Extra vehicle equity
- Small business assets
- Personal property not specifically listed elsewhere
Strategic Use of the Wildcard
The wildcard exemption is often the most powerful planning tool in Nebraska bankruptcy cases. It allows customization based on the debtor’s specific assets and financial situation.
In Chapter 13, wildcard-protected property may reduce the amount required to be paid to unsecured creditors. In Chapter 7, it can be the difference between keeping and losing an asset.
How Exemptions Differ Between Chapter 7 and Chapter 13
In Chapter 7, exemptions determine whether property is non-exempt and subject to liquidation. If an asset is fully exempt, the trustee cannot sell it.
In Chapter 13, exemptions affect the “best interest of creditors” test. If a debtor has non-exempt equity, that value must generally be paid to unsecured creditors over time rather than through liquidation.
This distinction often drives the choice between Chapter 7 and Chapter 13 for homeowners or individuals with valuable property.
Why Accurate Exemption Analysis Matters
Bankruptcy exemptions are not optional. They must be properly claimed, supported, and defended if challenged.
Common mistakes include:
- Overvaluing assets
- Underusing available exemptions
- Failing to account for joint ownership
- Poor timing of filing relative to tax refunds or income
An error in exemption planning can lead to asset loss or an unnecessarily expensive Chapter 13 plan.
Final Thoughts on Nebraska Bankruptcy Exemptions
Nebraska bankruptcy exemptions are designed to protect people, not punish them. When applied correctly, they allow individuals and families to eliminate debt while keeping the property they need to move forward.
Every bankruptcy case is different. The value of exemptions depends on asset values, debt structure, marital status, and timing. A careful, statute-based analysis is essential before filing.
If you are considering bankruptcy in Nebraska and want to understand how exemptions apply to your situation, a detailed review of your assets and goals should come first.