Will I Lose All My Property If I File for Bankruptcy?

No one loses all of their property when filing for bankruptcy. Find out what you'll keep.

Don't worry—you won't lose everything in bankruptcy. But you might lose unnecessary luxury items, like your fishing boat or a flashy car, or have to pay to keep them. To prevent expensive surprises, you'll want to learn:

  • how exemption laws protect property
  • what happens to items you can't protect, and
  • where to find your state's exemption laws.

Once you've mastered this area, it's a good idea to review some other things you should know about filing for bankruptcy. Or check out our quick ten-question bankruptcy quiz. It can help you spot potential bankruptcy issues fast.

You Won't Lose Property Protected by a Bankruptcy Exemption

Everyone needs things to maintain a job and home, and bankruptcy's fresh start wouldn't mean much if it stripped you of all your belongings. Instead, bankruptcy exemption laws protect property people need, like a working car, furnishings, and clothing.

So how do you know what you can keep?

You'll look to your state exemption laws. Each state has a set, and federal bankruptcy exemptions exist, too. Most states require filers to use the state exemption laws. However, some states let filers use the federal exemptions if they'd protect more property.

Make sure you have the correct list. If your property is on it, you keep it.

You'll Lose Property Not Covered by a Bankruptcy Exemption

At least in Chapter 7 bankruptcy. It works a bit differently in Chapter 13.

Losing Nonexempt Property in Chapter 7

The Chapter 7 bankruptcy trustee overseeing your case can't sell your exempt property in Chapter 7. But the trustee can sell nonexempt property. Even so, the trustee won't bother selling an asset that isn't worth much. The trustee will first decide if the property will bring a reasonable amount for creditors.

For instance, assume you owe $4,500 on a second car worth $5,000. After paying storage fees, sales costs, and the amount owed to the lender (trustees must pay off liens in Chapter 7 when selling property), nothing would be left for creditors. In that case, the trustee would likely abandon the car. You'd get to keep it.

Sometimes a filer wants to keep property that a trustee could otherwise sell for a reasonable amount. In that case, many trustees will sell it to the filer at a discounted price—usually about twenty percent less. The deal will depend on the amount the trustee would save on sales costs.

Paying for Nonexempt Property in Chapter 13

A Chapter 13 trustee won't sell your property, even if you'd like the trustee to do so. You'll keep all of it. As good as this might sound, it can get expensive. You must pay the value of your nonexempt property through your repayment plan.

If you can't afford the payment—and many people can't because nonexempt equity can drive up a monthly payment fast—you won't qualify for Chapter 13. Keep good records if you try to get around this problem by selling assets before filing for bankruptcy. You can always sell property and use the funds for your expenses, but you should plan to turn over any remaining amount to the trustee.

Where to Find Your State's Bankruptcy Exemptions

Your state's bankruptcy exemptions are in your state code. If you're not sure where to find your state's statutes, we can help. We provide state exemption lists (and even links to online statutes) in Bankruptcy Exemptions—What Do I Keep When I File for Bankruptcy? Scroll down to the middle of the article for state links.

But remember, mistakes can be costly. You must read the code section itself to be sure it applies.

Navigating Your Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

One way to keep track of your research is to use the bankruptcy forms as an outline. You'll find links to the exemption-related bankruptcy forms and other exemption resources in the chart below. You can also look at the list of Chapter 7 and 13 bankruptcy forms to see where this topic fits in the bankruptcy scheme. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

Bankruptcy Exemption Information

Bankruptcy Forms

Schedule A/B: Property

Schedule C: The Property You Claim as Exempt

Statement of Intention for Individuals

Related Information

What Happens to Your Property in Bankruptcy?

The Motor Vehicle Exemption

The Wildcard Exemption

Chapter 7 Homestead Exemption

Exemptions in Chapter 13 Bankruptcy

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

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 consulting with a local bankruptcy lawyer.

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