Federal Bankruptcy Exemptions

When filing for bankruptcy, you won't lose everything. Bankruptcy exemption laws let filers "exempt" or protect property needed to work and live. However, because so many bankruptcy laws exist, you'll need to know which bankruptcy exemption list to use. As a rule of thumb, you'll use your state's bankruptcy exemptions unless you live in a state that allows you to use either the state or federal bankruptcy exemptions.

In this article, you'll learn the following:

• how bankruptcy exemptions work to protect your house and property
• what happens to property you can't protect with a state or federal bankruptcy exemption in Chapter 7 and Chapter 13, and
• where to find your state's bankruptcy exemptions.

Once you've learned how to protect property in bankruptcy using state or federal bankruptcy exemptions, check out the resources provided at the end of the article. You'll find links to applicable bankruptcy forms and additional articles we think you'll enjoy.

States Allowing Federal Bankruptcy Exemptions

These states and the District of Columbia allow debtors to choose between their state system and federal bankruptcy exemptions. If your state isn't listed, federal exemptions aren't available. Go to "Bankruptcy Exemptions—What Can I Keep When I File for Bankruptcy" and scroll down to the state exemption chart.

Choosing Between State and Federal Bankruptcy Exemptions

You can't mix and match exemptions from the two systems, so you'll pick the set that protects the most meaningful or valuable assets.

Start by listing your property and each item's value, then evaluate how much each system protects. Your state list is in the "States Allowing Federal Bankruptcy Exemptions" section above.

How to Protect Your Home and Other Property With a Homestead Exemption and More

Exemptions won't help you maintain a luxurious lifestyle and keep you in the latest model BMW because most exemptions limit property value. So when comparing exemptions, read the requirements and check how much property the exemption will protect.

For instance, almost all "homestead" exemptions protect some equity in a residential home, not the entire house, and can't be used on rental property.

Currently, the federal homestead exemption is $27,900. If you have more equity in your house, say $100,000, you'll want to check your state homestead amount. It might be more generous. (We explain what happens when an exemption doesn't fully cover your equity below.)

A few exemptions allow a filer to keep property regardless of its value. For instance, you'll keep all prescribed health aids and government benefits, like Social Security (as long as you don't comingle the money with other funds).

Current Amounts for Federal Bankruptcy Exemptions

Before you get started, here are a few things you'll want to know:

• If the exemption doesn't include a dollar amount, you can keep the entire asset regardless of its value.
• If you and your spouse file for bankruptcy (a "joint" filing), you can double the exemption amount on any property you own together. For example, spouses who co-own their home can claim a $55,800 homestead exemption—double the $27,900 homestead exemption amount.
• The amounts are valid for bankruptcy cases filed between April 1, 2022, and March 31, 2025. The figures adjust every three years on April 1 to reflect Consumer Price Index changes.
• All code references are to 11 USC (Title 11 of the United States Code).

What Happens to Property You Can't Exempt Using State or Federal Bankruptcy Exemptions?

It will depend on the chapter you file. In Chapter 7 bankruptcy, you lose property not covered by an exemption. The bankruptcy trustee responsible for managing your case will sell the property for the benefit of your creditors. In Chapter 13 bankruptcy, you can keep all of your property; however, that luxury comes at a price—literally. You'll pay your creditors the value of any property not covered by an exemption in your Chapter 13 repayment plan.

For example, say you own a car outright worth $3,000, and you used the federal bankruptcy exemptions to protect your property. The motor vehicle exemption would cover up to $4,450. 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 would protect the equity fully. In the same example, if your vehicle were worth $15,000, the bankruptcy trustee would sell your vehicle, pay you $4,450 for the exemption, deduct sales costs, and distribute whatever remained to unsecured creditors.
• Chapter 13 Bankruptcy. In Chapter 13, you wouldn't need to pay extra to your creditors through your repayment plan. However, if the car were worth $15,000, you'd need to pay your creditors at least $10,650 (minus the amount it would have cost to sell the car in Chapter 7--Chapter 13 creditors aren't entitled to more than Chapter 7 creditors would get) through your plan.

Keep in mind that these examples don't take into account a vehicle loan. You'll find more information below.

Protecting a Financed Home or Car Using State or Federal Bankruptcy Exemptions

Many wonder if they can wipe out a home mortgage or car loan and keep the property without paying anything more. The simple answer is "No." Protecting the equity with an exemption will stop the Chapter 7 trustee from selling it, and you won't have to pay extra to keep it in Chapter 13, but there are more steps to take.

First, in a Chapter 7 case, the mortgage or car payment must be current. Second, you'll need to be able to continue to make the payment. Why? Because when you purchased it, you gave the lender a property "lien." The lien created a secured debt that allows the lender to take back the property if you don't pay as agreed—even in bankruptcy. So if you're behind on the payment and file for Chapter 7, you'll lose the property. Instead, consider catching up on arrearages in Chapter 13.

Learn how mortgages work in bankruptcy and how to file for bankruptcy without losing a car.

State and Federal Bankruptcy Exemption Timing Rules

It's tempting to move to a state with significantly more generous bankruptcy exemptions when filing for bankruptcy. But it likely won't do much good. To prevent people from abusing the system, filers must live in the state for at least two years—otherwise, they must use the previous state's exemptions. Here's how it works.

• If you've made your permanent home (your "domicile") in your current state for at least two years, you can use the state's exemptions (or the federal exemptions if allowed).
• If your domicile hasn't been in the same state for two years, the rules get more complicated, so prepare yourself. In fact, it sounds so strange we'll explain it in three different ways so that you know you didn't read it wrong. Here goes: You'll choose the state you lived in the longest during the 180 days immediately before the two years before filing.

Did you get that? If not, here's a way to figure it out. Count back two-and-a-half years. Then ask yourself where you lived the longest during the first six months of that two-and-a-half-year period.

Still confused? Let's try an example. Suppose you planned to file on January 1, 2022. Your two-and-a-half-year period would start July 1, 2019, and you'd qualify to use the exemptions of whichever state you resided in the most during the July 1, 2019, through December 31, 2019 period. You wouldn't have to file your case there, but you'd use that state's exemptions. Hopefully, that helps!

Special Homestead Exemption Rules

The homestead exemption protects your ownership interest in the home in which you reside. You'll need to read your state's homestead statute to determine the specifics, such as the amount of equity and acreage covered, whether the exemption protects a manufactured home, and if you need to file a homestead exemption with the county clerk. Also, you'll need to comply with a federal timing law—here's the rule:

You must live in the home for over 40 months before filing for bankruptcy. Otherwise, your homestead exemption is capped at $189,050 if you file on or after April 1, 2022 (the amount changes every three years). This cap won't apply if you bought your home with home sales proceeds from that state.

Find out more in Chapter 7 Homestead Exemption in Bankruptcy.

Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

Updated March 16, 2022