Which assets are exempt when I am declaring Chapter 13 Bankruptcy?

When you file for Chapter 13 bankruptcy, you don't have to give up any of your property. In Chapter 7 bankruptcy, any property you have that is not exempt can be taken by the trustee and sold, so the proceeds can be distributed among your creditors. This is not the case in Chapter 13, however. In Chapter 13, you keep all of your property; in exchange, you must agree to a repayment plan, to last three to five years, to pay off some or all of your debts. 

Exemptions determine which property you can keep in Chapter 7. Each state has its own list of exempt property; some states let you choose between the state list and a federal exemption list. (To learn more and find links to each state's exemption list, see Bankruptcy Exemptions: What Do I Keep When I File for Bankruptcy?) 

Exemptions play a different role in Chapter 13: They determine how much you must pay into your repayment plan. You must pay off some debts in full in Chapter 13, including child support and back taxes. If you have secured debts on property you want to keep (such as a mortgage on your home), you must stay current on those debts and make up any arrearages through your plan. 

What you must pay to your remaining creditors -- those holding unsecured debts that aren't entitled to priority in your repayment plan -- is determined partly by your nonexempt property. These creditors must receive at least what they would have gotten if you had used Chapter 7: the value of your nonexempt property. The more property you have that you can't protect with an exemption, the higher your plan payments will have to be. 

Chapter 13 Bankruptcy Exemptions

State laws vary as to the exempt dollar amounts and items that may be withheld from a bankruptcy estate. However, Chapter 13 allows more exemptions than does a Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, only a few assets are exempt, and those who seek Chapter 7 usually have very little income and very few personal assets. In Chapter 13, the following are usually exempt:

• Your home. The value of real or personal property used as a residence is a state specific law. Senior citizens and surviving spouses may be entitled to additional exemption amounts.
• A burial plot.
• Motor vehicle. The value of the vehicle allowable will be a state specific number.
• Household goods.
• Tools of your professional trade.
• Life insurance policies naming a spouse or child as beneficiary.
• Personal injury compensation is generally exempt.
• Individual retirement plans. IRA are exempt, most 401k plans are exempt and other qualified plans are exempt. The allowable amount may vary by state law.
• 529 plans. Recent contributions must fall within the debtors regular financial procedures. In other words, you cannot make large contributions in contemplation of bankruptcy. The allowable exemption amount may vary by state law.
• Child support and spousal support.
• Recent earnings. Wages earned during the 60 days prior to bankruptcy are exempted. The amount allowable will vary according to state law.

Discuss Chapter 13's asset protection with an experienced bankruptcy attorney to determine whether or not to file bankruptcy in your case.