What Assets Are Exempt from Bankruptcy: Complete Exemption Guide

Asset Exemption Overview

How Exemptions Work

When you file bankruptcy, all your property becomes part of the bankruptcy estate, at least theoretically. The trustee job is to identify non-exempt assets, liquidate them, and distribute proceeds to creditors. Exempt property comes back to you untouched.

Exemptions apply to equity, not total value. If your car is worth $15,000 but you owe $13,000 on the loan, your equity is only $2,000. A state with a $5,000 vehicle exemption would fully protect that car because your equity falls below the exemption amount.

This equity concept explains why most bankruptcy filers keep everything. By the time someone files bankruptcy, they typically do not have significant unencumbered equity in anything. Homes have mortgages. Cars have loans. Retirement accounts are exempt regardless.

Expert insight: "Do not assume your home or car is at risk without calculating your actual equity. Most people fears about losing property in bankruptcy turn out to be unfounded once we run the numbers."

Homestead Exemptions Protecting Your Home

Homestead exemptions protect equity in your primary residence. The amounts vary wildly by state, from a few thousand dollars in some states to unlimited protection in Texas and Florida. This single exemption often determines whether Chapter 7 is viable or whether you would need Chapter 13 to keep your home.

A few states offer truly unlimited homestead protection. Texas allows debtors to protect any amount of equity in their primary residence on up to 10 acres in a city or 200 acres in rural areas. Florida similarly protects unlimited value on up to half an acre in a city or 160 acres elsewhere.

Most states cap homestead exemptions at specific amounts. California offers between $300,000 and $600,000 depending on county median home prices. New York provides up to $179,950 in some counties, less in others. Massachusetts protects $500,000 automatically, more with a filed declaration.

If your equity exceeds your state homestead exemption, Chapter 7 becomes problematic. The trustee could force sale of your home, pay you the exempt amount, and distribute the rest to creditors.

Vehicle Exemptions

Every state provides some protection for vehicles, recognizing that transportation is essential for employment and daily life. The amounts range from around $2,500 in some states to over $15,000 in others, with special provisions sometimes available for certain categories of debtors.

The exemption typically applies to one vehicle per debtor. Married couples filing jointly may each claim a vehicle exemption, protecting two cars total. Some states allow you to apply unused homestead exemption to vehicles, creating additional protection.

Older, less valuable vehicles often receive full protection even in low-exemption states. A ten-year-old Honda worth $6,000 with a $4,000 loan has only $2,000 equity. Most state exemptions cover that amount easily. The people at risk are those with paid-off newer vehicles or significant equity in financed cars.

Retirement Account Protection

Retirement accounts receive extraordinary protection in bankruptcy, often unlimited, regardless of balance. This reflects strong public policy favoring retirement security and recognizing that retirement funds represent decades of savings that would be impossible to replace.

ERISA-qualified plans, including 401(k)s, 403(b)s, and traditional pensions, are completely exempt under federal law with no cap. A $2 million 401(k) is just as protected as a $20,000 one. This protection comes from federal statute, not state exemption law, and applies in every state.

Traditional and Roth IRAs receive protection up to approximately $1.5 million under federal bankruptcy law. SEP-IRAs and SIMPLE IRAs also qualify. The inflation-adjusted cap is high enough that virtually no individual bankruptcy filer hits it.

Expert insight: "I have seen people withdraw $40,000 from retirement to pay credit cards, then file bankruptcy anyway a year later. That retirement money was fully protected. They gave away assets they could have kept."

Personal Property Exemptions

Every state exempts reasonable personal property from bankruptcy, including household goods, furniture, clothing, and appliances. The theory is that these items have little liquidation value but significant use value to the debtor. Forcing people to surrender their couch and microwave helps no one.

Most states provide a lump sum personal property exemption in the range of $10,000 to $15,000. You can allocate this across all household goods collectively. Since used furniture and appliances sell for very little at auction, most people household goods fall well within exemption amounts.

Clothing receives separate or unlimited protection in most states. Nobody expects you to surrender your wardrobe. Similarly, necessary medical equipment, educational materials, and basic household necessities receive broad protection.

Valuable collections, artwork, jewelry beyond wedding rings, and luxury items may exceed exemptions. A $20,000 watch collection is not protected the same way a $500 television is. If you own items of significant value beyond daily necessities, discuss them with your attorney.

Frequently Asked Questions

Do I lose my house in bankruptcy?
Usually no. Homestead exemptions protect most home equity, and Chapter 13 lets you keep property regardless.

Can they take my car?
Only if your equity exceeds exemptions, which is uncommon for financed vehicles or older cars.

Is my 401(k) safe from bankruptcy?
Yes. ERISA-qualified retirement accounts have unlimited federal protection.

What about my wedding ring?
Most states specifically exempt wedding rings and reasonable jewelry. Expensive jewelry beyond this may not be protected.

Can I protect cash in the bank?
Wildcard exemptions often cover reasonable cash savings, but large bank balances may be exposed.

Should I move assets before filing?
Some conversion is acceptable, but large transfers immediately before filing can be challenged as fraud.