What Happens to Your Personal Property in Chapter 7 Bankruptcy?

Filing for Chapter 7 bankruptcy can help you eliminate overwhelming debt and give you a fresh financial start. But eliminating debt is only half the story. Contrary to widespread belief, individuals don't emerge from bankruptcy destitute. They're allowed to keep certain types of property up to a certain value.

The kinds of property that are "exempt" are determined by defined "exemptions." By taking advantage of exemptions, many debtors are able to keep most or all of their personal property. Ultimately, what you are allowed to keep depends on what property is deemed "exempt" by your state or the federal bankruptcy exemptions.

How Chapter 7 Bankruptcy Works

Chapter 7 bankruptcy can eliminate (discharge) most or all of your debts. In exchange, you might be required to give up certain property ("nonexempt" property) so that the bankruptcy trustee can sell it and use the proceeds to pay your creditors.

State and federal law define exempt property by type and value. Each state has its own exemption rules.

Congress gave each state a choice between using its own scheme and using one Congress devised, the federal bankruptcy exemptions. Some states allow citizens to choose either the state scheme or the federal scheme, but debtors must stick to one list. They can't pick and choose.

So, the exemptions you can use depend on where you live and whether your state allows you to use the federal bankruptcy exemptions.

What Personal Property Is Exempt?

If your state allows you to use the federal bankruptcy exemptions, the personal property you can exempt includes the following categories and amounts:

• $4,450 for equity in a motor vehicle
• $1,875 for jewelry
• $700 for each individual piece and up to $14,875 in the aggregate for household goods, furnishings, appliances, clothes, books, animals, crops, and musical instruments
• $2,800 for tools of the trade
• $14,875 for an insurance policy
• the full cost of health aids, and
• the balance in certain qualified retirement accounts.

This is by no means a complete list of categories of property you can exempt. (The values are good as of February 2023 and are scheduled to be adjusted in April 2025.)

States vary widely on the types of personal property a debtor can exempt and in what amount. Typically, states allow personal property exemptions on:

• a car (up to a certain value)
• household goods
• clothing
• jewelry
• wedding rings
• books
• food
• appliances
• tools of your trade, and
• tax-exempt retirement accounts.

Some states exempt additional items like firearms, quantities of consumables like sacks of flour, livestock, and more. Visit Bankruptcy Exemptions by State to see what exemptions are available in your state.

Getting the Most Out of Your Exemptions

Value each piece of personal property. You must value each piece of personal property (unless the property is exempt to an unlimited amount). Generally, value household items at yard sale prices. Some bankruptcy courts prefer that you determine either the replacement value of the item or how much it would cost you to replace the item with one of similar age and condition.

Remember to double, if you can. If you are filing a joint petition with your spouse, many states allow you to double the exemption amount (essentially allowing each of you to claim the exemption amount separately).

Categorize carefully. Make sure you categorize your property correctly. For instance, if you work from your home, you may be able to exempt personal property related to your business under the tools of the trade exemption rather than the household goods exemption. This can help you to maximize your exemptions.

Use the wildcard. The federal bankruptcy exemptions and many state exemption systems have a wildcard exemption. The wildcard allows you to exempt any property up to a certain dollar amount.

Keeping Nonexempt Personal Property

Even if you have personal property that isn't exempt, or the exemption doesn't cover the full value of your property, you still may be able to keep it.

Trustee abandons property. In many instances, the Chapter 7 trustee will abandon personal property (meaning the trustee won't take and sell it). Abandonment happens if the trustee doesn't believe that the sale of the property will garner anything for creditors—that is, little or nothing will be left after the exemption, sales costs, and trustee's commission are subtracted from the sales price.

For example, say your car is worth $4,000. If your state motor motor vehicle exemption is $3,500, it will cost $500 to sell the car, and the trustee will take a $350 commission, the trustee probably won't bother to sell the car.

Other ways to keep nonexempt personal property. There are other ways to keep nonexempt personal property. For example, sometimes you can pay the trustee an amount equal to the value of the property in order to keep it. Or sometimes you can exchange another piece of exempt property in order to keep the nonexempt property.

For More Information

For lots of free legal information about bankruptcy, check out our bankruptcy information page.

For a detailed explanation of how exemptions work in Chapter 7 bankruptcy and your options for keeping personal property, as well as step-by-step instructions on how to file for Chapter 7 bankruptcy, get How to File for Chapter 7 Bankruptcy, by Cara O'Neill (Nolo).

Bankruptcy is a complicated area of the law with concepts that many find challenging. It's a safe bet that you have issues that will require careful consideration before you file a bankruptcy case. We encourage you to consult with a knowledgeable bankruptcy attorney before taking any action. Many consumer bankruptcy attorneys offer free initial consultations.