If you file bankruptcy, you keep any property that fits within the exemption limits available to you, and in roughly 96 percent of Chapter 7 cases the trustee never collects or sells a single asset. Exemptions are dollar caps on categories of property — your home, car, retirement accounts, work tools, household goods, and more — and as long as your equity falls under the cap, that property stays yours. The real question is whether your particular mix of assets fits inside the exemption list that applies in your state, and whether you file Chapter 7 or Chapter 13.
How Exemptions Decide What You Keep
An exemption protects your equity in an asset, not its full price tag. Equity is what the property is worth today minus what you still owe on it. A car worth $15,000 with a $13,000 loan balance carries $2,000 in equity, and $2,000 is the number that has to fit under the exemption.
Exemptions are not automatic. Every asset you want to protect has to be listed on Schedule C of your bankruptcy paperwork. If you forget to claim something, the trustee can take it and sell it to pay creditors.1United States Bankruptcy Court District of New Jersey. Information Concerning Exemptions This is one of the most common avoidable mistakes in bankruptcy.
Federal or State Exemptions — Which List Applies to You
Federal bankruptcy law provides one exemption list, and every state has its own. Some states let you pick whichever system protects more of your property. Others have opted out of the federal list, so you must use the state list only.2Office of the Law Revision Counsel. 11 USC 522 – Exemptions You cannot mix systems. Whichever one you choose, every exemption you claim comes from that list.
Which state’s list applies depends on where you’ve lived. You generally must have lived in one state for the full 730 days (about two years) before filing to use its exemptions. If you moved during that window, the exemptions from your prior state may apply — specifically, the state where you lived for most of the 180 days before that 730-day period.2Office of the Law Revision Counsel. 11 USC 522 – Exemptions If those rules leave you ineligible for any state exemptions, you can use the federal list regardless of your state’s opt-out status.
What’s Protected Under the Federal Exemptions
The federal figures below took effect April 1, 2025, and remain in force through March 31, 2028. State amounts can be higher, lower, or structured differently, so if your state lets you choose, compare both lists carefully.
Your Home
The federal homestead exemption protects up to $31,575 of equity in your primary residence.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions – Adjustment of Dollar Amounts A home worth $250,000 with a $230,000 mortgage carries $20,000 in equity, well inside the federal limit.
Some states are far more generous, and a handful offer unlimited homestead exemptions. One catch matters here: if you bought your home within 1,215 days (roughly three years and four months) before filing, a federal cap of $214,000 limits the equity you can protect under state law, even in a state with an otherwise unlimited exemption.2Office of the Law Revision Counsel. 11 USC 522 – Exemptions The cap doesn’t apply if you rolled equity from a prior home in the same state into the new one, or to family farmers protecting their principal residence.
Your Car
Federal law protects up to $5,025 of equity in one motor vehicle.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions – Adjustment of Dollar Amounts Because most people owe close to (or more than) what their vehicle is worth, the equity often falls under this limit. State vehicle exemptions vary widely, with some considerably higher.
Household Goods, Clothing, and Jewelry
Federal exemptions cover household goods, furnishings, clothing, and appliances up to $800 per item, with a total cap of $16,850. Jewelry has a separate $2,125 exemption.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions – Adjustment of Dollar Amounts Used household goods have low resale value in practice, so trustees rarely bother with them. Your couch, dishes, and clothing are almost never at risk.
You can also protect personal injury compensation up to $31,575 (not counting pain and suffering awards) and unmatured life insurance contracts you own. Cash surrender value inside a life insurance policy is protected up to $16,850.2Office of the Law Revision Counsel. 11 USC 522 – Exemptions
Cash and Bank Accounts
Your bank balance on the day you file is an asset the trustee sees. There is no standalone federal exemption for cash, which makes the wildcard exemption (below) the usual tool for protecting money in the bank.
Deposits from exempt sources keep their protection after they land in your account. Social Security, veterans’ benefits, and disability payments remain exempt if you can trace the funds. Commingling those deposits with other income makes tracing harder, so keeping them in a separate account before you file is a smart move.
Tools of the Trade
Equipment, tools, and books you use for your work are protected up to $3,175 under federal law.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions – Adjustment of Dollar Amounts Mechanic’s tools, a photographer’s cameras, a carpenter’s saws — the point is to keep you earning after the case ends.
Retirement Accounts and Government Benefits
Retirement savings get some of the strongest protection in bankruptcy. Employer-sponsored plans such as 401(k)s and pensions are shielded in full, with no dollar cap. Traditional and Roth IRAs are exempt up to a combined $1,711,975.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions – Adjustment of Dollar Amounts
One important exception: inherited IRAs. In Clark v. Rameker, the Supreme Court held that money in an inherited IRA is not “retirement funds” for bankruptcy purposes because the account holder can withdraw the full balance at any time without penalty and must take distributions regardless of age.4Justia U.S. Supreme Court Center. Clark v. Rameker, 573 US 122 (2014) If you’ve inherited an IRA, that money is part of your bankruptcy estate unless a state exemption specifically covers it.
Government benefits are also exempt: Social Security, unemployment compensation, veterans’ benefits, and public assistance all stay yours.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions – Adjustment of Dollar Amounts
The Wildcard
The federal wildcard exemption protects any property you choose, up to $1,675, plus up to $15,800 of any unused portion of the homestead exemption.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions – Adjustment of Dollar Amounts A renter who doesn’t use the homestead exemption can stack the wildcard up to $17,475 total. That’s how most filers cover cash in the bank, a tax refund, a second vehicle, or anything else without its own dedicated exemption.
Tax refunds are worth calling out. Any refund based on income you earned before filing is part of your bankruptcy estate. If a large refund is on the way and hasn’t arrived, the trustee can claim it, and the wildcard is usually the tool that saves it. Timing your filing around when the refund lands can matter.
Property You’re Still Paying On
Exemptions protect equity, not the loan itself. When property secures a debt (a car loan, a mortgage), the lender’s lien survives bankruptcy. The discharge wipes out your personal obligation, but if you stop paying, the lender can still repossess the car or foreclose on the house. In Chapter 7 you have three ways to handle secured property.
Reaffirmation. You sign a new contract agreeing to remain personally liable for the debt and keep making payments. If you default later, the lender can repossess and sue you for the deficiency, with no discharge to fall back on. Reaffirmation agreements are voluntary and must be filed within 60 days after the first meeting of creditors.5United States Bankruptcy Court Western District of Washington. Reaffirmation Agreements Without an attorney, the judge must find the agreement is in your best interest before approving it. You have 60 days after filing the agreement (or your discharge date, whichever is later) to cancel it.
Redemption. You keep personal property, typically a car, by paying the lender its current fair market value in a single lump sum, even if you owe substantially more on the loan. After you pay, you own it outright with no remaining debt. Finding that cash during bankruptcy is the hard part. If you and the lender disagree on value, the court holds a hearing and decides.
Surrender. You give the property back and walk away, and the remaining debt is discharged. This is the simplest choice when the property isn’t worth fighting for or the payments won’t be sustainable.
Real estate works a bit differently in practice. Courts have generally recognized that a homeowner who stays current on mortgage payments can keep the property through bankruptcy without signing a reaffirmation agreement. Keep paying the mortgage, and the lender typically cannot foreclose even without one.
What Happens When an Asset Exceeds the Limit
When equity in an asset is more than the exemption covers, the overage is non-exempt. What happens then depends on the chapter.
In Chapter 7, the trustee can sell non-exempt assets and pay the proceeds to your creditors. A car worth $10,000 with a $5,025 exemption could, in theory, be sold; you’d receive your $5,025 back and the rest would go to creditors after sale costs and the trustee’s commission. In practice, trustees frequently decide the numbers don’t justify the effort. Federal law lets a trustee abandon property that is burdensome or of inconsequential value to the estate, and abandoned property returns to you as if the bankruptcy never touched it.6Office of the Law Revision Counsel. 11 USC 554 – Abandonment of Property of the Estate Anything the trustee hasn’t administered by the time the case closes is abandoned automatically.
In Chapter 13, nothing gets sold. You keep everything, exempt and non-exempt alike, but the value of the non-exempt portion sets a floor for what your repayment plan must pay unsecured creditors. Unsecured creditors have to receive at least as much through your plan as they would have received in a Chapter 7 liquidation.7Office of the Law Revision Counsel. 11 USC 1325 – Confirmation of Plan More non-exempt equity means higher monthly plan payments over three to five years.
That’s the practical trade-off between the two chapters. Chapter 7 is quicker and cheaper but exposes non-exempt property. Chapter 13 lets you keep everything but requires years of structured payments and is often the right choice when you have significant equity above the homestead cap, mortgage arrears to catch up on, or income that disqualifies you from Chapter 7.8United States Courts. Chapter 13 – Bankruptcy Basics
Things That Can Pull Property Into the Estate Unexpectedly
Even with careful exemption planning, certain events and past actions can bring property into your case that you didn’t expect to lose.
The 180-Day Rule for Windfalls
If you receive an inheritance, a life insurance payout, or property from a divorce settlement within 180 days after filing, that property becomes part of your estate as if you’d owned it on the filing date.9Office of the Law Revision Counsel. 11 USC 541 – Property of the Estate In Chapter 7 the trustee can seize it. In Chapter 13 it can raise your required plan payments. You must report the windfall to the court, and failing to do so can lead to your discharge being revoked.10United States Courts. Chapter 7 – Bankruptcy Basics
Payments and Transfers Before You Filed
If you paid one creditor at the expense of others shortly before filing, the trustee can reverse the payment. The lookback is 90 days for ordinary creditors and a full year for insiders like family members or business partners.11Office of the Law Revision Counsel. 11 USC 547 – Preferences Paying your brother-in-law in full while your credit card issuer got nothing is exactly what trustees look for.
Fraudulent transfers face a longer lookback. If you gave away property or sold it for far less than it was worth within two years before filing, whether or not you meant to hide it from creditors, the trustee can undo the transaction and pull the property back.12Office of the Law Revision Counsel. 11 USC 548 – Fraudulent Transfers and Obligations Transferring a car title to a relative before filing is the classic move, and trustees are very good at spotting it.
The Automatic Stay While Your Case Is Pending
The moment you file your petition, the automatic stay takes effect and forces nearly every creditor to stop collection activity immediately.13Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay Foreclosure halts. Repossession stops. Wage garnishments freeze. Lawsuits pause. Debt collectors can no longer call, write, or debit your account.
The stay isn’t permanent. A creditor can ask the court to lift it for cause — a mortgage lender, for example, may seek relief if you’ve fallen behind and have no realistic plan to catch up. But while your case is pending and your exemptions are being sorted out, the stay is what keeps property from disappearing out from under you.