Bankruptcy and Our New Gun Rights

Last week, the U.S. Senate (aided by the National Rifle Association) took a bold step toward safeguarding our 2nd Amendment rights in considering the companion bill to H.R. 5827 – “Protecting Gun Owners in Bankruptcy Act.”

This legislation creates a $3,000 federal exemption for firearms, meaning that the list of assets that a Trustee cannot take and sell to pay creditors will now include the pistol, rifle and shotgun.

This was political grandstanding and has little to do with how bankruptcy cases actually operate. First, only sixteen states and Washington D.C. allow you to use the federal exemptions on the list – the other states have “opted out,” creating their own set of exemptions.

Second, the federal exemption list also includes a $21,625 “wildcard,” above and beyond household goods and furniture. It is the rare case where a Chapter 7 case is filed and the wildcard is used up on other property, creating an “asset case.” Perhaps, we’re talking about 1,000 people a year who are (1) allowed to use the federal exemptions; (2) have firearms and (3) will file asset cases.

Of course, it allows one to game the system a bit. When a person is contemplating filing bankruptcy and has assets beyond the exemptions, it is common to convert an unprotected piece of property (e.g., bank account above the limit) to a protected category (depositing those funds into an IRA or a whole life insurance policy). Thanks to the N.R.A. and Representative Boccieri (whose Ohio constituents already were granted a firearm exemption under state law!), we now have yet another $3,000 category coming our way.