What are bankruptcy exemptions?
Bankruptcy exemptions are laws that protect certain property from being taken by the bankruptcy trustee or creditors. Each state has its own exemption laws, and some states allow you to choose between state and federal exemptions. Exemptions cover your home, car, retirement accounts, personal property, and more.
Do I lose everything if I file bankruptcy?
No. Most people who file bankruptcy keep all or nearly all of their property. Exemptions protect your home equity, vehicles, retirement accounts, household goods, clothing, and tools of your trade. In practice, over 95% of Chapter 7 cases are 'no asset' cases where filers keep everything.
What is the homestead exemption?
The homestead exemption protects equity in your primary residence. It varies dramatically by state -- from unlimited in Texas, Florida, and Kansas to as little as $5,000 in some states. The federal homestead exemption is $27,900 (2024). This exemption only protects your primary residence, not investment properties.
Can I keep my car in bankruptcy?
In most cases, yes. Every state has a vehicle exemption that protects some amount of equity in your car. The federal vehicle exemption is $4,450. If your car has more equity than the exemption covers, you may be able to use the wildcard exemption to protect the difference.
What is the wildcard exemption?
The wildcard exemption is a flexible exemption you can apply to any property. The federal wildcard is $1,475 plus up to $13,950 of any unused homestead exemption. Not all states offer a wildcard, and amounts vary significantly. It is especially useful for protecting cash, tax refunds, or property that does not fit other categories.
Are 401(k) and IRA accounts protected in bankruptcy?
Yes. Retirement accounts are among the best-protected assets in bankruptcy. 401(k), 403(b), and most pension plans have unlimited protection under ERISA. IRAs are protected up to approximately $1.5 million under federal law. Roth IRAs receive the same protection as traditional IRAs.
Can I choose between state and federal exemptions?
It depends on your state. About 17 states allow you to choose between state and federal exemptions. The remaining states require you to use state exemptions only. You must use one system or the other -- you cannot mix state and federal exemptions. Choosing the right system can significantly impact what you keep.
What is the opt-out provision for exemptions?
Congress allows states to 'opt out' of the federal exemption system, requiring their residents to use state exemptions instead. About 33 states have opted out. If your state has opted out, you cannot use federal exemptions. Check our state-by-state guide for your state's rules.
How do I know what my property is worth for exemption purposes?
Exemptions protect equity, which is fair market value minus any liens. For your home, use comparable sales or a recent appraisal. For vehicles, use NADA or KBB values. For personal property, use garage-sale value, not replacement cost. Being accurate protects you from trustee challenges.
What happens to property that exceeds my exemptions?
In Chapter 7, the trustee can sell non-exempt property and distribute the proceeds to creditors. In Chapter 13, you keep all your property but must pay unsecured creditors at least the value of your non-exempt property through your plan (the 'best interest of creditors' test).
Are Social Security benefits exempt from bankruptcy?
Yes. Social Security benefits are fully exempt in bankruptcy. They cannot be taken by the trustee or garnished by most creditors. Keep Social Security funds in a separate account to avoid commingling issues.
Can I protect my wages in bankruptcy?
Most states exempt some portion of earned but unpaid wages. The federal exemption does not specifically cover wages, but the wildcard can be applied. Some states protect 75-100% of wages. Check your state's specific wage exemption.
What tools of the trade exemption covers?
The tools of the trade exemption protects equipment, books, and supplies you need for your occupation. The federal amount is $2,800. This can include professional tools, computers used for work, industry-specific equipment, and reference materials.
Do exemptions work differently in Chapter 13?
In Chapter 13, exemptions determine how much you must pay unsecured creditors through your plan, not what property is taken. You keep all your property, but your plan payments must equal or exceed the value of your non-exempt assets.
Can I increase my exemptions before filing?
Pre-bankruptcy planning is legal within limits. You can convert non-exempt assets into exempt ones (e.g., paying down your mortgage). However, converting assets with intent to defraud creditors is illegal and can result in denial of discharge. A 2-year lookback applies to homestead exemption increases over $189,050.