When you file for bankruptcy, you don’t lose everything you own. You’re allowed to “exempt,” or keep, the property you’ll need to maintain a household and job, such as furnishings, clothing, and an inexpensive car. Each state determines the type and amount of property residents can exempt in bankruptcy. To find out what you’ll be able to keep, you’ll need to consult your state’s exemption statute.
Understand Bankruptcy Exemptions Before You File
The simplest way to avoid losing valuable property in bankruptcy is to know how much property you can keep before you file—especially if you’re planning to file for Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, the trustee (the person charged with distributing assets to your creditors) sells your nonexempt property (the property you aren’t allowed to keep) for the benefit of your creditors. Because you’re expected to know what will happen to your property before filing for bankruptcy, you can’t count on the judge dismissing your case if you make a mistake and want to stop the bankruptcy. For instance, if you incorrectly assume that you won’t lose your house and later find out that the trustee put it on the market, the bankruptcy judge will probably allow the trustee to sell your home.
Filing for Chapter 13 bankruptcy isn’t as risky because you don’t lose your property. However, you must pay unsecured creditors an amount equal to the value of the nonexempt property over the course of your repayment plan. You can learn more about declaring exempt property by reading Keeping Property Using Bankruptcy Exemptions: You Don't Lose Everything.
You Must Use the Correct Exemption List
To keep your property, be sure to use the bankruptcy exemption list approved by your state. Although a federal exemption list exists, you aren’t automatically entitled to use it. Each state has the authority to decide whether residents will use the federal exemption list or an exemption scheme created by the state. Most states have taken advantage of the right to determine how much property residents can retain and have adopted a state exemption list. Some states allow the bankruptcy filer to choose between the state and federal exemption allowances.
Below are two simple ways to find the list you’re entitled to use.
Visit Nolo’s Bankruptcy Exemptions by State topic page
You can read about your state’s exemption schedule on Nolo’s Bankruptcy Exemptions by State topic page. Keep in mind that exemption figures change, and that it’s important to verify that you’re using current exemption amounts. While you’re on the Nolo topic page, you’ll also be able to read additional articles about bankruptcy exemptions.
Consult with a local bankruptcy attorney
Another easy way to find out your state’s exemption laws is by meeting with a local bankruptcy attorney. A bankruptcy lawyer will explain what will happen to your property and help you choose the right bankruptcy chapter for your needs.
Questions for Your Attorney
- Can my creditor take my car if my state exemption list says I’m entitled to exempt a vehicle?
- How do I keep nonexempt property?
- Do I have to pay for my nonexempt property if I file for Chapter 13 bankruptcy?