What Are Non-Exempt Assets in Bankruptcy? Chapter 7 and 13

Non-exempt assets in bankruptcy are the pieces of property the law does not protect from your creditors. In a Chapter 7 case, the court-appointed trustee can take those assets, sell them, and use the proceeds to pay what you owe. In a Chapter 13 case, you keep everything you own, but your repayment plan has to pay unsecured creditors at least the value of whatever isn’t protected. Whether a specific item is exempt comes down to three things: the dollar limits set by federal or state law, the category the property falls into, and how you actually use it.

What Makes an Asset Non-Exempt

Bankruptcy is designed to give you a genuine fresh start, not strip you bare. Exemptions exist to protect property you need to live and work after the case ends. The federal list, for example, protects a portion of your home equity, a car up to a set value, household goods, clothing, and tools of the trade.¹ Anything outside those protections, or any equity above the applicable cap, is non-exempt.

When you file, you list every piece of property you own and its current value on your bankruptcy schedules.² The trustee reviews those schedules, applies the exemptions available to you, and identifies anything with unprotected value.

Common Non-Exempt Assets

Exemption systems are built around necessities. Property that looks like a luxury, a windfall, or a second-of-its-kind is almost always at risk. The categories that most often come up:

Second homes and vacation property. Exemption laws protect a primary residence, not additional real estate. A rental property or lake cabin is fair game.
Vehicles beyond the exemption cap. The federal motor vehicle exemption covers only $5,025 in equity per vehicle, and most state figures sit in that range. A second car, or a car with equity above the limit, is partially or fully non-exempt.¹
Valuable collections. Art, coins, stamps, wine, and similar collectibles rarely fit any exemption category.
Jewelry above the limit. The federal jewelry exemption is $2,125. An engagement ring or watch worth more carries non-exempt value.³
Non-retirement investments. Stocks, bonds, and brokerage accounts are not protected. Money inside a 401(k) or IRA is generally exempt, but a regular taxable investment account is not.
Cash and bank balances above the limit. Most exemption systems offer little protection for liquid cash; anything over the applicable cap is exposed.
Lawsuit settlements and pending claims. A personal injury award for bodily harm is exempt up to $31,575 under federal rules, but that figure excludes pain and suffering and punitive damages. Breach-of-contract settlements and similar claims have no special protection.¹
Professional tools above the limit. The federal tools-of-the-trade exemption is $3,175. A contractor with $20,000 in equipment has substantial non-exempt value.³

An asset can be partially non-exempt. If you own a car worth $15,000 free and clear and the applicable exemption covers $5,025, the remaining $9,975 is unprotected. The trustee can sell the car, pay you the exempt portion, and distribute the rest to creditors after sale costs.

Federal Exemption Limits for 2026

The Judicial Conference adjusts federal exemption amounts every three years. The most recent adjustment took effect April 1, 2025, and governs cases filed throughout 2026. The main figures:

Homestead: $31,575 in equity in your primary residence.¹
Motor vehicle: $5,025 in one vehicle.³
Household goods: $850 per item, up to $14,175 total.
Jewelry: $2,125.³
Tools of the trade: $3,175.
Wildcard: $1,675, plus up to $15,800 of any unused homestead exemption, applied to any property you choose.¹

The wildcard is the most flexible tool in the federal system. If you rent and have no homestead equity to protect, you can redirect most of that unused homestead amount to cover other property: cash in a bank account, a tax refund, or a vehicle with equity above the motor vehicle limit. Renters often find the federal exemptions more useful than their state list for exactly this reason.

State vs. Federal Exemptions

Federal law lets each state bar its residents from using the federal exemption list. About 35 states have done so, which means if you live in one of them you must use the state exemptions regardless of whether the federal limits would be more generous.¹ In the remaining states, you choose between the two lists. You cannot mix items from both.

Which list works better depends on what you own. A state with an unlimited homestead exemption is far more protective if you have substantial home equity and few other assets. The federal list, with its larger wildcard, is often better for renters or people whose wealth is spread across personal property and cash. If you recently moved, you generally must have lived in a state for at least 730 days before filing to use its exemptions.¹ If you haven’t met that threshold, the exemptions from your previous state of residence apply instead.

How Property Is Valued

Valuation decides whether an item clears the exemption limit or sticks out above it. The schedules require the “current value” of every asset, meaning its fair market value on the date you file. Fair market value is the price a willing buyer and willing seller would agree to without pressure. For most personal property, that figure is far below what you originally paid.

Used furniture, clothing, and electronics are worth what someone would pay at a thrift store or garage sale, not what replacement costs at retail. A couch you bought for $2,000 might honestly be worth $75 secondhand. Checking comparable prices at thrift stores, flea markets, and online resale sites is reasonable, and noting age and condition helps support your numbers if a trustee questions them. For higher-value items like antiques, fine art, or specialized equipment, a professional appraisal may be necessary. Trustees rarely dispute used-furniture figures, but they pay close attention to vehicles, real estate, and anything with a clear resale market. Where you and the trustee disagree, the court decides.

Non-Exempt Assets in Chapter 7

Chapter 7 is a liquidation process. The trustee gathers your non-exempt property, sells it, and distributes the proceeds to creditors in the priority order set by the Bankruptcy Code.²

When the Trustee Sells

If you have property with meaningful non-exempt equity, the trustee takes possession and arranges a sale. The trustee deducts sale costs and a statutory commission, pays you the exempt portion, and distributes the remainder to creditors. You lose the item, but the exempt amount comes back to you in cash.⁴

You can often buy the non-exempt equity back from the trustee. Trustees frequently accept a lump sum at or near the non-exempt value because it saves the time and cost of marketing the asset. The money usually has to come from an outside source, since your own cash may itself be part of the estate.

When the Trustee Abandons

Not every non-exempt asset is worth chasing. If selling an item wouldn’t produce a meaningful distribution to creditors after costs, the trustee can abandon it. The statute allows abandonment when property is “burdensome to the estate or of inconsequential value and benefit to the estate.”⁵ Once abandoned, the property reverts to you. Many Chapter 7 cases are no-asset cases where the debtor owns nothing with recoverable non-exempt value, and the case moves to discharge without any property being sold.²

Non-Exempt Assets in Chapter 13

Chapter 13 works differently. Nothing is sold. You propose a repayment plan lasting three to five years, with the length tied to whether your income is above or below your state’s median.⁶ You keep all your assets, but the plan must satisfy the “best interest of creditors” test: unsecured creditors have to receive at least as much through your plan as they would have received if your assets were liquidated in Chapter 7.⁷

Non-exempt value drives up your monthly payment. If you have $30,000 in non-exempt equity across various assets, the plan must distribute at least $30,000 to unsecured creditors over its term. On a five-year plan, that alone adds $500 per month before any other required payments. People with significant non-exempt assets sometimes find Chapter 13 is technically available but financially impractical because the monthly obligation becomes unmanageable.

Property You Receive After Filing

The estate doesn’t freeze on the day you file. Certain windfalls that arrive within 180 days of your filing date automatically become estate property, even though you didn’t own them when you filed. Federal law applies this rule to three specific categories: inheritances, property received through a divorce settlement, and life insurance or death benefit proceeds.⁸

If a relative dies 90 days after you file and leaves you $50,000, that inheritance is part of the estate. The exemption limits apply to it the same way they would to any other asset, but people often fail to report the windfall because they didn’t expect this rule. Tax refunds are another common post-filing asset. A refund based on income you earned before filing belongs to the estate regardless of when the check arrives. In Chapter 13, refunds based on income earned during the plan may also be claimed by the trustee, depending on local practice.

Consequences of Hiding Non-Exempt Assets

Trying to conceal property from the trustee is the fastest way to turn a bankruptcy from a fresh start into a disaster. The court can deny your discharge entirely, which means you complete the whole process and still owe every dollar.⁹ The trustee can also move to revoke a discharge already granted if hidden assets surface later. Debts from a case where a discharge was denied or revoked for fraud cannot be wiped out in a later bankruptcy either.

Concealing assets from a bankruptcy trustee, or making a false statement on your schedules, is a federal crime. A conviction carries a fine and up to five years in prison.¹⁰ Trustees also have the power to claw back property you transferred to someone else before filing. The federal lookback period is two years, so any transfer within two years of your petition date can be reversed if the trustee shows it was made with intent to cheat creditors, or was made for less than fair value while you were insolvent.¹¹ Where state fraudulent-transfer laws apply, that window can stretch to six years or more. The practical answer is almost always the same: list everything, value it honestly, and claim every exemption the law gives you.

1
Office of the Law Revision Counsel. 11 USC 522 – Exemptions
2
United States Courts. Chapter 7 – Bankruptcy Basics
3
Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases
4
U.S. Department of Justice. Control, Preservation, and Sale of Estate Assets for the Benefit of Creditors
5
Office of the Law Revision Counsel. 11 USC 554 – Abandonment of Property of the Estate
6
United States Courts. Chapter 13 – Bankruptcy Basics
7
Office of the Law Revision Counsel. 11 USC 1325 – Confirmation of Plan
8
Office of the Law Revision Counsel. 11 USC 541 – Property of the Estate
9
Office of the Law Revision Counsel. 11 USC 727 – Discharge
10
Office of the Law Revision Counsel. 18 USC 152 – Concealment of Assets; False Oaths and Claims; Bribery
11
Office of the Law Revision Counsel. 11 USC 548 – Fraudulent Transfers and Obligations