What happens to your property in bankruptcy depends on whether you file under Chapter 7 or Chapter 13. In Chapter 13, you get to keep all of your property, but you must pay your creditors all or some of what you owe them in a repayment plan that lasts three to five years.
In Chapter 7, however, you might lose some of your property. You don't have to directly repay any debt in Chapter 7. Instead, the trustee is entitled to take and sell any property you own that isn't covered by an exemption (a protection offered by state or federal law that prohibits creditors or the trustee from taking certain essential items of property). The proceeds from selling your nonexempt property is then distributed to your creditors (and used to pay the trustee's fee). If you own property that has not only sentimental value but value in the marketplace as well, you might lose it if it isn't exempt. To learn more, see Chapter 7 and Chapter 13 bankruptcy.
Exemptions are intended to protect necessities. Each state's list of exemptions is different, but most cover at least some equity in your home, a vehicle, clothing, home furnishings, and retirement accounts. (To learn more about exemptions -- and find links to every state's exemption list -- see Bankruptcy Exemptions - What Do I Keep When I File for Bankruptcy?) Some states are more generous than others. For example, some states allow you to exempt all of your home equity, even if you own your home free and clear; others limit you to $5,000 or $10,000. If you have a considerable amount of equity that isn't protected by an exemption, the trustee could take and sell your home.
The same is true of heirloom items, such as artwork, furniture, books, and jewelry that are handed down from generation to generation. Depending on the value of the item and your state's exemption list, you may be able to protect certain things. For example, most states allow you to keep a family Bible. Many states exempt furnishings, clothing, and at least a certain amount of jewelry. However, if you have valuable heirlooms that aren't protected by an exemption, you may well lose them in Chapter 7 bankruptcy. To learn more, see bankruptcy exemptions.
If none of the exemptions available to you protect your family heirlooms, all hope isn't necessarily lost. Here are a few other ways you may be able to keep your treasured property: