What Property Can You Keep in Chapter 7 Bankruptcy? Exemptions Explained[yoast-breadcrumb]
What Property Can You Keep in Chapter 7 Bankruptcy? Exemptions Explained
Filing for Chapter 7 bankruptcy can be a confusing process. One of the big questions many people have is what property they can keep after filing. The answer lies in something called exemptions. Exemptions are an important part of bankruptcy law that allow you to protect some of your assets from being taken and sold by the bankruptcy trustee to pay back creditors.
I know – exemptions can be complicated to understand. But I’ll walk you through the basics here in plain English, so you have a good idea of what you may be able to keep if you file Chapter 7 bankruptcy.
What are Bankruptcy Exemptions?
Exemptions are provisions in the bankruptcy code that allow you to keep certain assets during your bankruptcy case – the trustee can’t take them and sell them. The idea is that even when you file bankruptcy, you should be left with enough basic property to get by and start rebuilding your financial life.
There are federal exemptions that apply across the country, and there are also state-specific exemptions. When you file Chapter 7 bankruptcy, you have to choose whether to use the federal exemptions or your own state’s exemptions. Some states allow you to choose federal OR state, while others require you to use one or the other.
Each exemption has a dollar limit on the value of property it protects. As long as your property is under that value limit, the exemption will fully protect it in bankruptcy. So for example, say there’s a $3,000 exemption for jewelry – if your jewelry is worth $2,500, you can keep it all. But if your jewelry is worth $4,000, the trustee would take and sell the amount over $3,000.
Common Federal Exemptions
Here are some of the most common federal bankruptcy exemptions and what types of property they protect:
- Homestead exemption – protects equity in your primary residence up to $25,150 for a single filer and $50,300 for joint filers .
- Motor vehicle exemption – protects your car, truck, motorcycle, or other vehicle up to $4,000 .
- Personal property exemption – protects personal household items like furniture, appliances, clothes, etc. up to $13,400 .
- Jewelry exemption – protects jewelry up to $1,700 .
- Tools of trade exemption – protects work-related equipment up to $2,525 .
- Wildcard exemption – a catch-all that you can use for any property up to $1,350 .
These dollar amounts are updated periodically for inflation. And remember, some states may offer higher exemption limits if you use state exemptions instead.
Common Exempt Property
While exemptions can cover many types of assets, there are some that tend to be protected more often than others in Chapter 7 bankruptcy. These include :
- Your primary home (up to exemption limits)
- Your car, truck, or other vehicle (up to exemption limits)
- Normal household goods like furniture, appliances, clothes
- Jewelry like wedding rings
- Tools you use for work
- Basic electronics like a computer, phone, TV
- Retirement accounts like 401(k)s and IRAs
- Some life insurance and annuity policies
- Disability benefits
- Social Security benefits
As you can see, many everyday items that are necessary for living and working are commonly protected. The trustee won’t try to take the shirt off your back.
While exemptions cover a lot, there are some assets that are fair game for the trustee to take and sell in a Chapter 7 bankruptcy. These include :
- Cash and bank accounts
- Investments like stocks and bonds
- Expensive luxury items like furs, art, antiques, collectibles
- Boats, planes, RVs
- Secondary homes, vacation properties
- Rental and investment properties
- Cash value in excess of exemption limits in life insurance
So if you have significant assets like these, be aware you may lose them in a Chapter 7 bankruptcy. Your bankruptcy attorney can advise you on the implications in your specific situation.
Using Exemptions Strategically
Since exemptions are such an important part of deciding what you can keep in Chapter 7, it’s crucial to use them wisely. Here are some tips :
- Know your state’s exemption laws – federal vs. state, amounts, types of property covered.
- If your state allows it, choose federal or state exemptions strategically to protect the most assets.
- If you have assets above exemption limits, consider selling them and using the proceeds on exempt assets.
- You may be able to exempt 100% of equity in your home by claiming a homestead exemption – but requirements like residency period may apply.
- Make sure to claim exemptions for all eligible property – don’t leave anything on the table.
- If you’re married, make sure to maximize use of exemptions for both spouses.
An experienced bankruptcy attorney can help make sure you take full advantage of all possible exemptions. But you can also do your own research using resources like your state’s exemption statutes.
The Bottom Line
At the end of the day, the exemptions available in Chapter 7 bankruptcy are designed to help you keep your basic necessities and give you a fresh start. For most filers, exemptions allow them to protect things like their home, car, retirement funds, and household belongings. But for others with significant non-exempt assets, bankruptcy may result in liquidation.
Every situation is different, so it’s important to understand exemptions and plan your bankruptcy strategy accordingly. Talk to a bankruptcy lawyer if you need help ensuring you can keep as much property as possible.