What Will I Lose If I Declare Bankruptcy

Asset Protection in Bankruptcy

Asset Type	Usually Protected	At Risk If...
Primary Residence	Yes, up to state exemption	Equity exceeds exemption amount
Vehicle	Yes, up to $4,000-$15,000	Significant equity beyond exemption
Retirement Accounts	Fully protected	Almost never at risk
Household Goods	Yes, reasonable necessities	Luxury items or collections
Bank Accounts	Partially, varies by state	Large balances may be exposed

How Exemptions Protect Your Property

Every state has exemption laws specifying property you can keep even when you owe money. Bankruptcy follows these exemption rules. Some states use their own exemptions; others let you choose between state and federal exemptions.

The exemption isn't for the item itself—it's for equity. Your car might be worth $15,000, but if you owe $13,000 on the loan, your equity is only $2,000. Most exemptions would cover $2,000 easily.

This is why most people keep everything. They don't have significant equity in their assets. Homes are mortgaged. Cars have loans. Household goods depreciate rapidly. The stereotypical bankruptcy liquidation where everything gets auctioned rarely happens in consumer cases.

Expert insight: "The trustee only takes assets worth enough to sell. A 10-year-old TV with $50 resale value costs more to auction than it's worth. Trustees skip low-value items even if technically non-exempt."

Your Home in Bankruptcy

Homestead exemptions vary wildly by state. Texas and Florida offer unlimited homestead protection—you can keep a mansion regardless of equity. Kansas, Iowa, and a few others have similar protections. Most states cap homestead exemptions between $25,000 and $500,000.

If equity exceeds your exemption, Chapter 7 becomes problematic. The trustee could force sale of your home, pay you the exemption amount, and distribute remaining proceeds to creditors. This scenario pushes people toward Chapter 13, where you keep the home and pay creditors from income.

State	Homestead Exemption	Vehicle Exemption
Texas	Unlimited	$30,000/$60,000
Florida	Unlimited	$1,000
California	$300,000 - $600,000	$3,325+
New York	$179,950 - $399,900	$4,825
Federal Option	$27,900	$4,450

Vehicles and Transportation

Vehicle exemptions range from $4,000 to $15,000 in most states, with some offering higher amounts for certain categories like disabled individuals or heads of household. Federal exemptions provide about $4,450 per debtor.

Like homes, what matters is equity. A car worth $20,000 with an $18,000 loan has $2,000 equity—easily protected. A paid-off luxury vehicle might exceed exemptions, but most working people drive cars worth less than their state allows.

Even when vehicle equity exceeds exemptions, Chapter 13 provides alternatives. You keep the car and pay the non-exempt equity to creditors through your plan.

Retirement Accounts Are Safe

Here's something that surprises people: retirement accounts are almost completely protected in bankruptcy. 401(k)s, 403(b)s, pensions, and most IRAs are exempt without limit. ERISA-qualified plans have federal protection that bankruptcy can't touch.

This matters enormously. Some people raid retirement accounts to pay creditors before filing bankruptcy. Don't. That money was protected. By withdrawing it—paying penalties and taxes—you converted protected assets into money creditors might have reached anyway.

Expert insight: "Never cash out retirement accounts to pay credit cards. That 401(k) was protected. Now it's gone, you owe taxes and penalties, and you might still end up in bankruptcy anyway."

What You Might Actually Lose

Let's be honest about what bankruptcy can cost. Cash beyond reasonable amounts—typically $500 to $2,000 depending on state—might be taken. Tax refunds can be claimed if substantial. Valuable collections, expensive jewelry, and second vehicles might exceed exemptions.

Real estate beyond your primary residence rarely survives Chapter 7. Rental properties, vacation homes, and investment land usually get sold. The trustee liquidates, pays your exemption, and distributes proceeds.

What You Gain

Focusing solely on losses misses the picture. Bankruptcy eliminates debt representing years of payments. It stops wage garnishment, lawsuits, and foreclosure. It provides a starting point for financial recovery.

Most clients describe the calculation as obvious in hindsight. They kept their home, car, retirement, and possessions while eliminating $30,000, $50,000, or $100,000 in debt. The fresh start value exceeded any exemption concerns.

Frequently Asked Questions

Will I lose my house in bankruptcy?
Most people don't—homestead exemptions protect significant equity, and Chapter 13 can cure mortgage arrears.

Can the trustee take my car?
Only if equity exceeds your state's vehicle exemption, which rarely happens with financed vehicles.

Is my 401(k) protected?
Yes—retirement accounts have virtually unlimited protection under federal law.

What about personal belongings?
Household goods, clothing, and necessary personal items are exempt in every state.

Can I keep my engagement ring?
Usually yes—most states have jewelry exemptions, and practical value often falls within limits.

What if my assets exceed exemptions?
You might file Chapter 13 instead, keeping assets while repaying creditors from income.