Bankruptcy Exemptions – What Do I Keep When I File For Bankruptcy?

Bankruptcy exemptions determine if you can keep your house, automobile, pension and retirement funds, personal belongings, etc.

Bankruptcy exemptions are an important part of the bankruptcy system. In Chapter 7 bankruptcy, exemptions determine what property you get to keep, whether it be your home, car, pension, personal belongings, or other property. If the property is exempt, you can keep it during and after bankruptcy. If the property is nonexempt, the trustee is entitled to sell it to pay your unsecured creditors.

In Chapter 13 bankruptcy, you can keep all of your property; however, in your Chapter 13 repayment plan, you'll pay your creditors the value of any property that isn't covered by an exemption, or your disposable income, whichever is more.

If you are considering bankruptcy, it's important to understand how bankruptcy exemptions work and learn what property is exempt in your state.

Choosing a Bankruptcy Exemption System: Federal Bankruptcy Exemptions or State Bankruptcy Exemptions?

Each state has a set of exemptions that apply in bankruptcy. Most states require you to use those state exemptions. However, seventeen states allow debtors to choose between the state exemption system and another set of exemptions created by Congress, called the federal bankruptcy exemptions. California is unique in that it has two sets of state exemptions that debtors may choose from.

If you have a choice of exemption systems, you must choose one system or the other. You cannot mix and match. If you choose to use your state exemption system, you can also use a shortlist of additional exemptions prescribed by federal law, called the federal nonbankruptcy exemptions. To find out current federal nonbankruptcy exemption amounts, see Federal Nonbankruptcy Exemptions.

To find out whether your state makes the federal exemptions available to you, and to learn the exemption amounts for key pieces of property in your state, click on your state link below. To find out the current amounts for the federal bankruptcy exemptions, see Federal Bankruptcy Exemptions.

How Bankruptcy Exemptions Work

If you own property worth a certain amount, and the property equity is equal to or less than the exemption amount available in your state, you get to keep the property in Chapter 7, and don't need to pay extra to keep it in Chapter 13.

For example, say you own a car outright worth $3,000, and your state has a vehicle exemption of up to $5,000. Here's what would happen in each chapter.

  • Chapter 7 Bankruptcy. If you file for Chapter 7 bankruptcy, you will get to keep your car because the exemption will protect the equity fully. In the same example, if your car is worth $15,000, the bankruptcy trustee will likely sell your car, pay you $5,000 for the exemption, and pay the rest to your unsecured creditors.
  • Chapter 13 Bankruptcy. In Chapter 13, you won't need to pay extra to your creditors through your repayment plan. However, if your car is worth $15,000, you'll need to pay your creditors $10,000 through your plan, unless your disposable income is sufficiently high and they'd receive at least that much anyway.

Keep in mind that these examples don't take into account a vehicle loan. For more information, read How to File Bankruptcy Without Losing a Car

Also, it will cost the trustee something to sell your property, and if your equity in the property won't cover the exemption, the payment of any loan secured by the property, and the costs of sale, the trustee is unlikely to sell the property.

For example, suppose you own a piano worth $2,500, and your state has a $2,250 exemption for musical instruments. The trustee is unlikely to sell the piano because the costs of moving and selling the piano would probably be greater than $250, and the trustee would end up with nothing to pay your unsecured creditors. To learn more, see Property Abandonment in Chapter 7.

Which State Exemption System Should You Use?

Which state exemption system you will use will depend on where you have lived for the past two years. Here are the rules:

  • If your domicile (defined as where you make your permanent home) has been in your current state for at least two years, use that state's exemptions (or the federal exemptions if allowed in your state).
  • If you have not been domiciled in the same state for at least two years, the rules get more complicated.

Special Rules for the Homestead Exemption

The homestead exemption applies to your home or other real property that you use as your primary residence. (The exact definition depends on your state).

The domicile rules for the homestead exemption require you to have acquired your home in the state where you currently live more than 40 months before filing for bankruptcy. Otherwise, your homestead exemption is capped at $170,350 if you file on or after April 1, 2019 ($160,375 for cases filed between April 1, 2016, and March 31, 2019—the amounts change every three years). This cap doesn't apply if you bought your home with the proceeds from selling another home in that state. To learn more, see Chapter 7 Homestead Exemption in Bankruptcy.

Using Bankruptcy Exemptions in Your Situation

To determine what property you will get to keep if you file for Chapter 7 bankruptcy, start by making an inventory of your property and each piece of property's replacement value. Then compare the value to your state's exemption, if any, for that type of property. If your state offers a choice between systems, do this for each system to determine which one allows you to keep the property that matters to you.

Bankruptcy Exemptions By State

Choose from the list below information regarding exemption laws in your state.

New Jersey
New York
South Carolina

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