When you file for bankruptcy, everything you own becomes part of a court-supervised estate, but exemption laws let most people keep the property they actually use day to day. In a Chapter 7 case, a trustee can sell anything that isn’t protected by an exemption and distribute the proceeds to creditors. In a Chapter 13 case, you keep all of your property and repay creditors through a three- to five-year plan instead. How much you lose, if anything, depends on which chapter you file, what exemptions you can claim, and how much equity you have in each asset.
Your Property Becomes a Bankruptcy Estate
The moment you file the petition, the law creates a separate legal entity called the bankruptcy estate, and it includes every legal or equitable interest you hold at that instant.1Office of the Law Revision Counsel. 11 USC 541 – Property of the Estate That covers the obvious things, like your house, car, and bank accounts, but it also sweeps in property people often forget about: pending lawsuit claims, tax refunds you’re owed, intellectual property, and interests in family trusts.
A court-appointed trustee takes charge of the estate.2Office of the Law Revision Counsel. 11 USC 704 – Duties of Trustee The trustee reviews your financial records, identifies everything you own, and decides what, if anything, can be sold for the benefit of creditors. You keep physical possession of your belongings for the moment, but you no longer have free rein. Selling, giving away, or hiding property after filing can lead to denial of your discharge or criminal charges.
Exemptions Are How You Keep Things
Exemptions pull specific property back out of the trustee’s reach. Federal law provides a standard set of exemptions, but roughly two-thirds of states require you to use their own exemption list instead.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions States that allow a choice let you pick whichever set protects more of your property. You cannot mix and match individual exemptions from both lists.
Each exemption applies to the equity you own in an asset, not its sticker price. You take the fair market value, subtract any loans or liens, and the remainder is your equity. If the exemption amount covers all of that equity, the property is fully protected. You claim exemptions on Schedule C of your bankruptcy petition.
Current Federal Exemption Amounts
The Judicial Conference adjusts federal exemption figures every three years. The current amounts took effect April 1, 2025, and apply to every case filed through March 31, 2028:4Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases
- Homestead: up to $31,575 in equity in your primary residence.
- Motor vehicle: up to $5,025 in equity in one car, truck, or other vehicle.
- Wildcard: $1,675 plus up to $15,800 of any unused homestead exemption, applied to any property you choose.
- Household goods: up to $800 per item, with an aggregate cap of $16,850.
- Tools of the trade: up to $3,175 in implements, books, or tools used in your profession.
The wildcard is especially useful for renters. With no home equity to protect, you can redirect up to $15,800 of the unused homestead exemption to cover cash, electronics, or anything else, bringing the effective wildcard to $17,475. State exemption amounts vary widely. Some states offer unlimited homestead protection while capping vehicle equity at a few thousand dollars; others do the reverse. Look up the list that applies in your state, because that is what controls the outcome in most cases.
When Equity Exceeds the Exemption
If your equity in an asset is larger than the applicable exemption, the trustee can sell the item and pay you the exempt amount from the proceeds. Say you own a car free and clear worth $12,000 and the vehicle exemption is $5,025. The trustee can sell the car, hand you $5,025, and distribute the rest to creditors after sale costs. In practice, many trustees will offer you the chance to pay the nonexempt amount in cash so you can keep the property.
Most Chapter 7 cases are “no-asset” cases, meaning the trustee finds nothing worth selling once exemptions are applied. When the cost of liquidating an item would eat up most of the proceeds, the trustee can formally abandon the property back to you.5Office of the Law Revision Counsel. 11 USC 554 – Abandonment of Property of the Estate Any estate property not administered by the time the case closes is automatically abandoned to you as well. If your assets are modest and your exemptions cover them, the trustee files a no-asset report and moves on.
Keeping Property That Secures a Loan
Exemptions protect your equity, but they do not pay off a lender who still holds a lien. If you want to keep a financed car or similar collateral after bankruptcy, one option is a reaffirmation agreement. This is a new contract where you agree to remain personally liable for the debt despite the bankruptcy discharge, and in return the lender lets you keep the property and continue making payments as if the bankruptcy never happened.6Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge
Reaffirmation carries real risk. If you default later, the creditor can repossess the property and sue you for any remaining balance, and you cannot file another Chapter 7 to wipe out that debt for eight years. Before the agreement takes effect, your attorney must certify in writing that it doesn’t create an undue hardship and that your choice is informed and voluntary. If you don’t have an attorney, the bankruptcy judge must approve the agreement by finding it’s in your best interest.6Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge
You can change your mind. The law gives you until the later of 60 days after filing the agreement with the court or the date your discharge is entered to rescind. After that window closes, the agreement binds you. No creditor can force you to reaffirm, and choosing not to simply means you surrender the collateral and walk away from the debt.
Chapter 13 Lets You Keep Everything
Chapter 13 takes a different approach. You keep all of your property and repay creditors through a court-approved plan funded by your disposable income over three to five years.7United States Courts. Chapter 13 – Bankruptcy Basics If your income is below the state median for a household your size, the plan runs three years (the court can extend it for cause). If your income is above the median, the plan generally must run five.
The minimum you pay through the plan is set by the “best interest of creditors” test. Your unsecured creditors must receive at least as much as they would have gotten if your nonexempt assets had been liquidated in a Chapter 7 case.8Office of the Law Revision Counsel. 11 USC 1325 – Confirmation of Plan If you own a boat with $12,000 in nonexempt equity, your plan must distribute at least $12,000 to unsecured creditors over its life. You also must pay the full value of any secured claims you want to keep, like a car loan balance, typically with interest.
Finish the plan and remaining eligible debts are discharged. Fall behind and the court can dismiss the case or convert it to a Chapter 7 liquidation, which puts your nonexempt assets back on the table. Chapter 13 is a trade: future income in exchange for keeping property today.
Retirement Accounts Get the Strongest Protection
Retirement savings receive more protection than any other asset category. Employer-sponsored plans like 401(k)s, 403(b)s, and defined-benefit pensions are shielded by ERISA and excluded from the bankruptcy estate entirely, with no dollar cap.9U.S. Department of Labor. FAQs About Retirement Plans and ERISA A trustee cannot touch these funds regardless of how large the balance is.
Traditional and Roth IRAs are also protected, up to a cap. The current limit is $1,711,975 per person, effective April 1, 2025, and applying to all cases filed through March 2028.4Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases SEP-IRAs and SIMPLE IRAs are fully protected without a cap because they function as employer-sponsored plans. Rollovers from a 401(k) into a traditional IRA keep their protected status, but the money must stay in a dedicated retirement account. Moving it into a regular checking or savings account destroys the protection.
Property You Get After You File
Most property you acquire after the filing date stays yours and does not become part of the estate. There is a significant exception. Any inheritance, life insurance payout, or property from a divorce settlement that you become entitled to within 180 days after filing gets pulled into the estate.1Office of the Law Revision Counsel. 11 USC 541 – Property of the Estate The trigger is when the right arises, not when cash hits your account. If a relative dies 170 days after you file and leaves you $50,000, that inheritance belongs to the estate even if probate takes another year to finish.
You’re required to amend your bankruptcy paperwork to disclose these windfalls. If an available exemption covers the inherited property, you keep it. Otherwise, the trustee takes the nonexempt portion. People sometimes try to time a filing to dodge this rule, but a competent trustee will check for recent deaths in the family and pending divorce proceedings.
Transfers Before Filing Can Be Reversed
Trustees have the power to reach back in time and recover property you gave away or debts you paid off before filing. Two tools do most of the work.
The first is preferential transfer recovery. If you paid a creditor more than they would have received through your bankruptcy within the 90 days before filing, the trustee can claw that payment back. The lookback window extends to a full year for payments made to insiders like relatives, business partners, or close associates.10Office of the Law Revision Counsel. 11 USC 547 – Preferences Paying off your sister’s $10,000 loan nine months before filing is exactly the kind of transfer a trustee will reverse.
The second is fraudulent transfer avoidance. The trustee can undo any transfer made within two years before filing if you received less than fair value in return, or if you made the transfer with the intent to put assets beyond creditors’ reach.11Office of the Law Revision Counsel. 11 USC 548 – Fraudulent Transfers and Obligations Selling your car to a friend for $1 a year before filing is a textbook example. The trustee doesn’t need to prove you were trying to cheat anyone if the price was clearly below market and you were insolvent at the time of the sale. These powers exist because people who anticipate bankruptcy are often tempted to move valuable assets to friendly hands, and trustees look for exactly that.
The Automatic Stay Freezes Collection
Filing the petition triggers an immediate court order called the automatic stay, which stops nearly all collection activity against you and your property.12Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay Creditors cannot repossess your car, foreclose on your home, garnish your wages, or even call you about a debt while the stay is in place. Pending lawsuits pause, and new ones generally cannot be filed.
The stay isn’t permanent. It lasts until the court lifts it, the case closes, or the case is dismissed. A secured creditor like a mortgage company can ask the court for permission to proceed with foreclosure if you’re behind on payments and the property isn’t adequately protected. If you filed and dismissed a bankruptcy case within the prior year, the stay in your new case may last only 30 days unless you convince the court to extend it. Two or more dismissed cases in the prior year means no automatic stay at all unless you get a court order.