What assets are exempt in bankruptcy? Learn what you can keep during Chapter 7 or 13. Protect your essentials with this easy guide.
Ever Wondered If You’ll Lose Everything in Bankruptcy?
Filing for bankruptcy is scary. You might worry about losing your home, car, or things you own. The good news is — you won’t lose everything. U.S. bankruptcy laws let you keep certain things, called exempt assets.
In this guide, we’ll show you what assets are exempt in bankruptcy. We’ll talk about how rules change by state and chapter. You’ll learn what to know to feel more confident and less scared. Let’s start!
What Does “Exempt” Mean in Bankruptcy?
When you file for bankruptcy, all your stuff becomes part of the bankruptcy estate. But don’t worry — you don’t have to give up everything.
Exempt assets are things you’re allowed to keep. These rules help you keep a basic standard of living while you get back on your feet.
In simple terms:
- If it’s exempt, you keep it.
- If it’s non-exempt, the trustee might sell it to pay creditors.
Types of Bankruptcy That Involve Exemptions
There are two main types of personal bankruptcy that deal with exemptions:
- Chapter 7 (Liquidation): Some property may be sold to pay creditors.
- Chapter 13 (Reorganization): You keep your property but repay debts over time.
Exemptions are important in both types of bankruptcy.
Federal vs. State Bankruptcy Exemptions
The U.S. has two systems of exemptions:
- Federal exemptions (available in some states)
- State-specific exemptions (mandatory in others)
Where you live decides which system you use. You might have to pick one or follow your state’s rules.
Here’s a quick look:
| State-Only Exemption States | States That Offer a Choice |
|---|---|
| California (system 1) | Texas |
| Florida | New York |
| Georgia | Illinois |
| North Carolina | Pennsylvania |
Tip: Some states have wildcard exemptions. This lets you protect any property up to a certain value.
The Most Common Federal Bankruptcy Exemptions
Here’s what you can usually keep under federal exemption laws (updated often):
| Property Type | Federal Exemption Limit (2024) |
| Homestead (house) | Up to $27,900 |
| Motor vehicle | Up to $4,450 |
| Household goods | Up to $14,875 total |
| Jewelry | Up to $1,875 |
| Tools of trade | Up to $2,800 |
| Wildcard exemption | $1,475 + unused homestead |
Note: Limits are per individual, not household.
Exemptions That Help You Keep the Essentials
The law helps you keep important things for living and working. You might be surprised by what you can keep.
Examples of common exempt items include:
- Your primary residence (up to the limit)
- A modest car
- Clothing and basic furniture
- Pension and retirement accounts
- Social Security and unemployment benefits
Retirement Accounts and Pensions
Good news! Most retirement accounts are 100% protected in bankruptcy. This means you can retire comfortably.
Protected accounts usually include:
- 401(k)s
- IRAs (up to a cap)
- Government pensions
- ERISA-qualified plans
Federal law protects up to $1.5 million in traditional and Roth IRAs.
Public Benefits You Don’t Lose
You also get to keep certain public assistance benefits, no matter what:
| Type of Benefit | Exempt in Bankruptcy? |
| Social Security | ✅ Yes |
| Unemployment benefits | ✅ Yes |
| Workers’ Compensation | ✅ Yes |
| Disability payments | ✅ Yes |
| Veterans’ benefits | ✅ Yes |
Funds must be kept separate in a traceable account to remain protected.
What About Wages and Bank Balances?
Wages and bank balances can be tricky. Some may or may not be protected, depending on your state and the amount.
In general:
- A portion of recent wages might be exempt
- Bank accounts are often only partially exempt unless tied to protected funds (like disability or Social Security)
Pro tip: Move protected benefits into their own account to avoid confusion!
Can I Keep My Car in Bankruptcy?
Most likely — yes, if its value is under the exemption limit (e.g., $4,450 federal).
If you’re financing your car:
- You may reaffirm the loan and keep making payments
- You may also redeem the car by paying its current value in a lump sum
Keeping your car depends on your equity, your state’s exemption rules, and your repayment plan.
What About My Home?
If your home equity is below the homestead exemption limit, you can keep your house in bankruptcy.
Things to keep in mind:
- Equity = Home’s value – mortgage balance
- Federal homestead exemption = $27,900 (per person)
- Some states (like Florida) have unlimited homestead protection
Filing jointly as a married couple may double your exemption!
Wildcard Exemptions: Your Safety Net
A wildcard exemption is your flexible friend in bankruptcy. You can use it to protect anything — jewelry, electronics, extra savings, even a second vehicle.
Example: If you don’t use the full homestead exemption, you can apply the unused amount elsewhere.
This is a lifesaver if you have property that isn’t covered under any specific exemption.
What Can’t You Keep in Bankruptcy? ⚠️
Unfortunately, some assets just aren’t protected.
Non-exempt assets may include:
- Second homes or luxury vehicles
- Expensive collectibles
- Investment properties
- Large cash savings
- Stock portfolios (not retirement accounts)
These items might be sold to pay off creditors.
Do Exemptions Work Differently in Chapter 13?
Yes, but here’s the twist — you usually keep all your assets in Chapter 13.
Instead of liquidation, you propose a 3–5 year repayment plan. Your exemptions affect how much you’ll repay — not what you get to keep.
So while you keep your stuff, the value of non-exempt items affects how much you must pay back to unsecured creditors.
How Do I Know What Applies to Me?
Your state’s laws — and how much equity you have — make a huge difference. That’s why:
✅ Talk to a bankruptcy attorney before filing. They’ll help you:
- Choose the best chapter (7 or 13)
- Pick federal or state exemptions
- Strategically protect your most valuable property
Each case is unique — don’t guess. Get personalized help.
Final Thoughts: Bankruptcy Isn’t the End
Filing for bankruptcy doesn’t mean you’ll lose everything. Thanks to smart exemption laws, you can keep the essentials and reset your financial future.
Whether it’s your home, your retirement fund, or your furniture, you’re not starting from zero. And that’s a powerful feeling. ✅
Take time to understand your rights, protect your assets, and move forward with confidence.
FAQs
What assets are exempt in Chapter 7 bankruptcy?
Chapter 7 lets you keep exempt property like a home, car, clothing, and retirement accounts.
Can I keep my house and car in bankruptcy?
Yes, if their value is within your exemption limits or you’re continuing loan payments.
Do I lose my 401(k) in bankruptcy?
No. 401(k)s are fully protected under federal bankruptcy laws.
Is Social Security protected in bankruptcy?
Yes, Social Security income is exempt but should be kept in a separate account.
What happens to non-exempt property in bankruptcy?
Non-exempt property may be sold to repay debts, mostly in Chapter 7 cases.
References
https://www.nolo.com/legal-encyclopedia/bankruptcy-exemptions
https://www.law.cornell.edu/uscode/text/11/522
https://www.consumerfinance.gov/ask-cfpb/what-property-can-i-keep-if-i-file-for-bankruptcy-en-1461/
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