What Is Considered Exempt in Chapter 7 Bankruptcy Law?

by Mary Jane Freeman Google
Debtors typically use the homestead exemption to protect their homes in bankruptcy.

Debtors typically use the homestead exemption to protect their homes in bankruptcy.

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When you file for Chapter 7 bankruptcy, any assets you have may be seized to pay your obligations. However, pursuant to the U.S. Bankruptcy Code, certain property may be protected from loss, or exempted. Property commonly exempted includes a debtor's home, vehicle and personal belongings. However, there are limits to what can be protected and in what amounts. To find out what you can protect in bankruptcy, you must look to both federal and state law.

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Chapter 7

When it comes to filing for bankruptcy, individuals usually choose either Chapter 7 or Chapter 13. In Chapter 7 bankruptcy, the bankruptcy trustee seizes the debtor's nonexempt assets and liquidates them to pay his debts. With Chapter 13, nothing is given up, but rather the debtor enters into a repayment plan in which he pays some or all of his debts over three to five years. If any debts remain unpaid when either bankruptcy case ends, those debts are discharged and the debtor's liability is extinguished. Chapter 7 bankruptcy is typically used by debtors with limited income and few assets.


When debtors choose to file Chapter 7 bankruptcy, the law doesn't require that they give up everything. This is because bankruptcy is meant to provide a fresh financial start. In order to do that, the law understands that debtors need some property to begin their new financial lives with. As a result, debtors can protect certain property from seizure through the use of exemptions, available in both federal and state law. Exemptions are categories of property a debtor may protect up to a certain value. For example, under both federal and state laws, debtors may exempt the equity in their homes up to a set amount, commonly known as the homestead exemption. As of 2013, this amount is $22,975 under federal law. However, when it comes to the states, this amount varies drastically. For example, in Nevada, you can exempt up to $550,000 of your home's equity -- Nevada offers one of the most generous homestead exemptions in the country. In Mississippi, on the other hand, you're limited to only $75,000.

What Qualifies

You can exempt anything the law allows. However, if you live in a state that doesn't let debtors choose between federal and state exemptions, you can only exempt the property and amounts permitted in your state. Depending on where you live, that could be to your benefit or disadvantage. While the type of property that can be exempted varies between both federal and state law as well as from state to state, certain categories of property are almost always exempt. These include a debtor's personal residence, vehicle, tools used in his profession, personal property, household furnishings, public benefits, retirement accounts and personal injury awards. Another common exemption, available under federal law and in many states, is the wildcard exemption, which is a catch-all category. Debtors can use this exemption to protect any type of property they want, whether it's cash in a bank account, tax refund or equity in a second or third home.


Once your nonexempt assets have been set aside and your remaining assets sold, your bankruptcy case will start winding down and eventually come to an end. This usually happens relatively quickly, usually within six months or less. Once your debts are discharged in bankruptcy, you no longer have to worry about creditors coming after you or your exempt property: the discharge bars them from doing so.