By Attorney Stephen Elias
Property that is not in your bankruptcy estate is not subject to the bankruptcy court’s jurisdiction, which means that the bankruptcy trustee can’t take it to pay your creditors under any circumstances.
The most common examples of property that doesn’t fall within your bankruptcy estate are:
Property you buy or receive after your filing date. However, there are a few exceptions to this rule. Specifically, if you acquire (or become entitled to acquire) certain items within 180 days after you file, you must report them to the bankruptcy court—and the bankruptcy trustee may take them. (11 U.S.C. § 541(a)(5).) The 180-day rule applies to:
Tax-deferred education funds.
Funds in qualified tuition programs or Coverdell accounts. Under the 2005 bankruptcy law, funds placed in a qualified tuition program or Coverdell education savings account are also not part of your bankruptcy estate, as long as:
Funds placed in the account more than two years before you file are excluded from the bankruptcy estate without limit. However, you can exclude only $5,850 of the contributions you make between one and two years before filing. And contributions made within the year before filing are not excluded at all.
For amounts that are not excluded from the bankruptcy estate, you can use a state exemption, if one exists (assuming you are using your state’s exemptions and not the federal exemptions).
Property pledged as collateral for a loan, if a licensed lender (pawnbroker) retains possession of the collateral.
Property in your possession that belongs to someone else. For instance, property you are storing for someone.
Wages that are withheld, and employer contributions that are made, for employee benefit and health insurance plans.
Child support arrearages. Child support arrearages owed to the debtor because the parent is entitled to the funds only in his or her capacity as trustee for the child, are not part of the bankruptcy estate. (In re Perry, No. 06-50237 (Bkrtcy. D. South Dakota 2009).)
Even if your property is in your bankruptcy estate, you still may be able to keep it. How much you get to keep will depend on whether the property is considered exempt under the state exemption system available to you (or under the federal exemption statute, if the state where you file allows you to choose between the federal and state exemptions). (To learn about exemptions and how they work, see Bankruptcy Exemptions -- What Do I Keep When I File for Bankruptcy?).
One type of property exemption applies to everyone. Retirement accounts are exempt, no matter which exemptions you use. This is because in 2005, Congress created a broad exemption for all types of tax-exempt retirement accounts, including 401(k)s, 403(b)s, profit-sharing and money purchase plans, IRAs (including Roth, SEP, and SIMPLE IRAs), and defined-benefit plans. These exemptions are unlimited—that is, the entire account is exempt, regardless of how much money is in it—except in the case of traditional and Roth IRAs. For these types of IRAs only, the exemption is limited to a total value of $1,171,650 per person (this figure will be adjusted every three years for inflation). These accounts are exempt regardless of whether you use the federal or a state exemption system.
Excerpted from How to File for Chapter 7 Bankruptcy, by Attorney Stephen Elias, Albin Renauer, J.D., & Robin Leonard, J.D. (Nolo).