What Do You Lose in Bankruptcy: Non-Exempt Property and Exemptions

Filing bankruptcy costs you different things depending on which chapter you file. What you lose in bankruptcy under Chapter 7 is any property that isn’t shielded by an exemption: a court-appointed trustee sells those non-exempt assets and pays the proceeds to your creditors. Under Chapter 13, you keep everything you own but commit to a three-to-five-year repayment plan that pays creditors at least what they would have received from a Chapter 7 sale.¹ The rest of this article focuses on Chapter 7, where property loss is direct and immediate.

Chapter 7 and Chapter 13 Lead to Different Losses

Chapter 7 is the liquidation form of bankruptcy. A trustee reviews everything you own, sells anything not protected by an exemption, and distributes the proceeds. In exchange, qualifying debts are discharged. Most Chapter 7 cases are actually “no-asset” cases, meaning the debtor’s property is either exempt or holds too little equity to justify a sale.²

Chapter 13 keeps your property intact. You pay creditors through a plan instead of surrendering assets, and the plan payments must at least equal what unsecured creditors would have received if your non-exempt property had been sold in Chapter 7.¹ If holding onto specific property matters more than clearing debt quickly, Chapter 13 is the path that protects it.

What Falls Into the Bankruptcy Estate

The moment you file a Chapter 7 petition, a legal entity called the bankruptcy estate comes into existence. It automatically includes nearly every interest you hold in property: home equity, vehicles, bank accounts, investment portfolios, personal belongings, and even pending legal claims.³ From that moment on, you lose the legal right to sell, transfer, or give away any of those assets while the case is open.

The trustee’s job is to find non-exempt property in the estate and turn it into cash for creditors.⁴ The trustee reviews the schedules you filed with your petition, decides what you can legally keep, and sells the rest. A trustee will typically only sell an asset if the expected proceeds — after sales costs and paying you the exempt amount — would meaningfully benefit creditors. Otherwise the property is abandoned back to you.²

Your Bank Account Can Be Frozen

One consequence catches many filers by surprise. If you owe money to the same bank where you keep a checking or savings account (a credit card balance with that bank, for example), it may have a contractual right to offset your deposit against that debt. The automatic stay pauses this right, but banks often freeze accounts temporarily while the situation is sorted out.⁵ Moving deposits to a bank where you carry no debt before filing avoids the problem.

Non-Exempt Property the Trustee Sells

Non-exempt property is anything the law does not specifically protect. Common examples:

Second vehicles, such as a recreational boat, ATV, or extra car not needed for work or daily transportation
Vacation homes or investment real estate beyond your primary residence
Valuable collections, including coin sets, art, and antiques with significant market value
Non-retirement investment accounts, including brokerage accounts, stocks, bonds, and cryptocurrency
Cash and bank balances exceeding what exemptions cover
Equity in your home or car that exceeds the applicable exemption limit — the trustee can sell the asset, pay you the exempt amount, and give creditors the rest

Exemptions That Let You Keep Property

Exemptions are the dollar limits that determine how much property you can shield from the trustee. Every state has its own set, and some states also let you choose the federal exemption package instead.² You must pick one system entirely; you cannot mix items from both lists. States that have “opted out” of the federal system leave you with the state exemptions only.

Federal Exemption Amounts

Federal exemption amounts are adjusted every three years. The most recent adjustment took effect April 1, 2025, and applies to cases filed through March 31, 2028:⁶

Homestead (primary residence): $31,575 in equity
Motor vehicle: $5,025 in equity
Household goods and furnishings: $800 per item, up to $16,850 total
Jewelry: $2,125
Tools of your trade: $3,175 in professional tools, books, or equipment
Wildcard: $1,675, plus up to $15,800 of any unused portion of the homestead exemption, applied to any property you choose

The wildcard matters most for renters. If you don’t own a home, none of the $31,575 homestead exemption goes to use, so you can apply up to $17,475 in combined wildcard protection to a car, a bank balance, or anything else that would otherwise be exposed.

A quick example shows how the math works. Say you own a car worth $12,000 with no loan on it. You have $12,000 in equity, but the federal motor vehicle exemption only protects $5,025. The trustee can sell the car, hand you $5,025, and give creditors the remaining $6,975. Change the facts so you still owe $9,000 on the loan, and your equity drops to $3,000. That is fully covered by the exemption, and the trustee has no reason to touch the car.

Homestead Exemption

Home equity is often a filer’s most valuable asset. The federal homestead exemption protects $31,575 in equity in your primary residence.⁶ State homestead exemptions vary widely, from as little as $5,000 to unlimited protection in a handful of states, sometimes subject to acreage limits.

One trap. If you bought your home within 1,215 days (roughly three years and four months) before filing, federal law caps the homestead exemption at $214,000 no matter how generous your state’s exemption is.⁷ The cap does not apply if you rolled equity from a prior home in the same state into the new purchase.

Retirement Accounts

Retirement savings receive some of the strongest protections in bankruptcy. Employer-sponsored plans that qualify under federal pension law (401(k)s, 403(b)s, pension plans, profit-sharing plans) are fully excluded from the estate with no dollar limit. Traditional and Roth IRAs are also protected, but with an aggregate cap of $1,711,975 as of April 1, 2025. The cap applies to all IRAs combined, not per account. If you withdraw retirement funds before filing, the money loses its protected status and becomes available to creditors.

Personal Injury Settlements

Pending or recently received bodily injury settlements are protected up to $31,575 under the federal exemption, excluding pain and suffering or economic loss components.⁸ Anything above that threshold could be claimed by the trustee unless a state exemption offers broader coverage.

Which State’s Exemptions Apply

Live in the same state for at least 730 days (two years) before filing, and you use that state’s exemptions.⁷ If you moved during that window, you generally use the exemptions of the state where you lived for the majority of the 180 days immediately before the 730-day period. If neither state qualifies, you fall back on the federal exemptions. The rule stops people from relocating to a generous-exemption state right before filing.

Keeping a Car or Home With a Loan

Secured debts, meaning loans tied to specific property, create a separate decision. The debt itself may be dischargeable, but the lender still holds a lien. If you want to keep a car or home that secures a loan, Chapter 7 gives you two main options.

Reaffirmation

A reaffirmation agreement is a new contract in which you agree to remain personally liable for the debt despite your bankruptcy discharge. In exchange, the lender lets you keep the property and continue making payments. The agreement must be filed with the court before your discharge is entered.⁹ The risk is real. If you later fall behind on payments, the lender can repossess the property and sue you for any remaining balance, just as if you had never filed.

Redemption

Redemption lets you keep tangible personal property, most commonly a car, by paying the lender its current market value in a lump sum, even if you owe far more on the loan.¹⁰ The gap between what you pay and the full balance is discharged. Redemption applies only to personal property securing consumer debt, and the property must be either exempt or abandoned by the trustee. The lump-sum requirement makes redemption tough for many filers, though some specialty lenders offer redemption financing.

Property You Can Lose After Filing

Property you acquire after your filing date is generally yours to keep. Your post-filing paycheck, a gift from a friend, a lottery ticket bought after the case opens, all belong to you. There is an important exception.

The 180-Day Rule

These items become part of the bankruptcy estate if your right to receive them arises within 180 days of your filing date:¹¹

Inheritances, if a relative dies within 180 days of your filing
Life insurance or death benefit proceeds you become entitled to as a beneficiary within the window
Property from a divorce settlement finalized within 180 days

You must notify the trustee and amend your paperwork if any of these events happen, even if your case has already closed. The trustee will evaluate whether your exemptions cover the new property; anything they don’t cover can be claimed for creditors. Failing to disclose a post-filing inheritance or insurance payout can get your discharge revoked.

Tax Refunds and Pre-Filing Wages

Tax refunds are a common source of loss because they represent money earned before filing. For the tax year in which you file, the refund is typically prorated based on your filing date. File halfway through the year, and roughly half of the eventual refund is estate property. The portion attributable to income earned after filing is yours.

Wages you had earned but not yet received on the filing date are also part of the estate. Some exemption systems provide a small cash or wage exemption, and a wildcard exemption can sometimes cover the rest.

Property You Already Transferred

Giving away or selling property cheap before filing does not put it out of the trustee’s reach. The trustee can undo certain pre-filing transfers and pull the property, or its value, back into the estate.

Fraudulent Transfers

A transfer made within two years before filing can be reversed if you either intended to cheat your creditors or received significantly less than the property’s fair value while insolvent.¹² Giving a car to a relative, selling jewelry to a friend at a steep discount, or moving money into someone else’s account can all trigger a clawback. State fraudulent transfer laws may extend the look-back to four years or longer.

Preferential Payments

Payments made to creditors in the 90 days before filing may be reversed if they gave that creditor more than it would have received through the bankruptcy distribution. If the creditor is an “insider” (a family member, business partner, or close associate), the look-back extends to one year.¹³ Repay a $10,000 personal loan to your brother two months before filing, and the trustee can demand the money back from him to distribute among all creditors.

What Hiding Property Costs You

You sign your bankruptcy schedules under penalty of perjury. Intentionally concealing property, undervaluing assets, or failing to disclose transfers carries serious consequences:

Denial of discharge, leaving you with all the debts you were trying to escape plus any property already liquidated
Revocation of discharge, which the trustee can request up to one year after the discharge date if hidden assets surface
Criminal prosecution: concealing assets in bankruptcy is a federal crime punishable by up to five years in prison, a fine, or both¹⁴
Permanent consequences: debts from a bankruptcy where discharge was denied or revoked for concealment cannot be discharged in any future bankruptcy filing

Impact on Your Credit Report

Beyond property, bankruptcy leaves a lasting mark on your credit. A filing remains on your credit report for up to 10 years from the date of the court order.¹⁵ During that period, getting new credit, renting an apartment, or passing certain employment background checks can be harder. The effect on your credit score fades over time, particularly if you rebuild with responsible borrowing after discharge, but the record itself stays visible to anyone who pulls your report.

1
United States Courts. Chapter 13 – Bankruptcy Basics
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United States Courts. Chapter 7 – Bankruptcy Basics
3
Office of the Law Revision Counsel. 11 USC 541 – Property of the Estate
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Office of the Law Revision Counsel. 11 U.S. Code 704 – Duties of Trustee
5
Office of the Law Revision Counsel. 11 U.S. Code 362 – Automatic Stay
6
Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases
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Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions
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Office of the Law Revision Counsel. 11 USC 522 – Exemptions
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Office of the Law Revision Counsel. 11 U.S. Code 524 – Effect of Discharge
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Office of the Law Revision Counsel. 11 U.S. Code 722 – Redemption
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Office of the Law Revision Counsel. 11 U.S. Code 541 – Property of the Estate
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Office of the Law Revision Counsel. 11 U.S. Code 548 – Fraudulent Transfers and Obligations
13
Office of the Law Revision Counsel. 11 U.S. Code 547 – Preferences
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Office of the Law Revision Counsel. 18 U.S. Code 152 – Concealment of Assets; False Oaths and Claims
15
Consumer Financial Protection Bureau. How Long Does a Bankruptcy Appear on Credit Reports?