Certificate of Deposit in Bankruptcy: Is it Exempt?

If you file for Chapter 7 bankruptcy, state law determines whether you can keep a certificate of deposit.

If you file for Chapter 7 bankruptcy, you must give up any property you own that isn't protected by an exemption. Whether financial instruments -- like certificates of deposit -- are exempt depends on state law. It may also depend on where you got the funds and what they are for.  

Bankruptcy Exemptions

In Chapter 7 bankruptcy, you get to keep all of your exempt property. However, your nonexempt property can be taken by the trustee and sold, so the proceeds can be distributed to your creditors. Exemptions are determined by state law, and each state's list of exempt items is different. To learn more about exemptions, and to find links to each state's exemptions, see  Bankruptcy Exemptions - What Do I Keep When I File for Bankruptcy?  Some states allow you to choose between the state's list of exemptions and a federal list of exemptions; other states don't offer this choice. California, unique in this and many other ways, allows bankruptcy filers to choose between two sets of state exemptions.  

Are Certificates of Deposit Exempt?  

There are several ways a certificate of deposit might be exempt under state law. Some states provide an exemption for a certain amount of cash or liquid assets deposited in the bank, including certificates of deposit. (Typically, the amount you can exempt is limited.) If your state doesn't exempt CDs directly, it may still be exempt in one of these ways:

  • It might be held in a type of account that's exempt. For example, every state exempts certain types of retirement accounts (including IRAS, Roth IRAS, and tax-exempt retirement accounts, like 401(k)s). Some states exempt tuition credits and education savings accounts. Some states exempt security deposits held by landlords, money in a spendthrift trust, and other types of financial vehicles. If a certificate of deposit is held in a vehicle your state protects, it may be exempt.
  • It might be funded with exempt money. Many states exempt at least a limited amount of cash and deposits from certain sources. For example, some states protect insurance proceeds, some percentage of a debtor's wages, and bank deposits that come from Social Security or other public benefits. If your CD is funded with money that's exempt in your state, it may also be exempt.  
  • It might be covered by a wildcard. Some states offer a wildcard exemption, which you can use to protect any property you choose. Although some states have a relatively small wildcard (in the hundreds of dollars), other states are more generous. A few even allow debtors to use their homestead exemption as a wildcard, if they don't use it for their real property. If the amount of your CD doesn't exceed your state's wildcard exemption, you can protect it.  

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