Bankruptcy Exemptions

The property a person filing bankruptcy keeps - the home equity, vehicle, household goods, tools, retirement accounts and other assets the law places beyond the reach of the trustee and creditors - and the state-by-state choice of which exemption list applies.

Looking for a lawyer rather than a definition? Skip to the state-by-state list of law firms for this.

What it means

Bankruptcy does not take everything. When a case is filed, all of the debtor's property becomes the bankruptcy estate, and the debtor then claims exemptions: categories of property, each up to a value fixed by statute, that are removed from the estate and kept. In a Chapter 7 case the trustee may sell only non-exempt property; in a Chapter 13 case the debtor keeps everything, but the value of what would have been non-exempt sets a floor on what the plan must pay unsecured creditors. Most consumer cases are "no-asset" cases in which every item of property is exempt and the trustee distributes nothing.

Federal law provides one list of exemptions, but it also allows each state to opt out and require its residents to use the state's own list instead. Most states have opted out; a minority let the debtor choose between the federal and state lists. The lists differ substantially - in whether a homestead exemption protects a fixed dollar amount of equity or an unlimited amount, in how vehicles and wages are treated, and in "wildcard" exemptions that can be applied to any property - so which state's law applies is often the single most consequential fact in a case. A person who moved recently is governed by a look-back rule that may send them to a former state's exemptions, precisely to stop people moving to a generous state before filing.

Retirement funds in tax-qualified plans and IRAs are protected under federal law regardless of which list applies, subject to a cap on IRAs. An exemption protects equity, not the property itself: a house with a mortgage larger than its value has no equity to exempt, and keeping it is a question of continuing to pay the lender, not of exemptions. A trustee or creditor may object to a claimed exemption within a period fixed by the rules, and an objection not made in time is waived even if the exemption was wrong.

Where this comes from

When people hire a lawyer for this

Exemption planning is legitimate and it is where a bankruptcy lawyer earns the fee: which list applies, how to value a vehicle or a home, whether to convert non-exempt cash into an exempt form before filing and how far that can go before it becomes a fraudulent transfer, and how to schedule every asset so that nothing is omitted - an undisclosed asset is not protected by any exemption and can cost the discharge. A person who has moved between states in the last few years should raise that first, because it may change everything else.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

Find a lawyer for this in your state

Choose your state to see Bankruptcy law firms in the city where we list the most; your city may be under “other cities”, A to Z. A state marked “Bankruptcy & Debt” has no Bankruptcy listing yet and opens the broader page.

• Alabama (Birmingham)
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  +6 other cities

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  • and 7 more with fewer listed firms
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• Utah (Salt Lake City)
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  +2 other cities

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• West Virginia (Charleston)
• Wisconsin (Madison)
  +1 other city

  • Milwaukee
• Wyoming (Cheyenne)

Related terms

Other entries in the same area of law, each written from the same primary sources.

• Automatic StayThe immediate, court-ordered halt to most collection activity that takes effect the moment a bankruptcy case is filed.
• Bankruptcy DischargeThe court order that ends personal liability for the debts covered by a bankruptcy case - what it does, what it does not do to liens and co-signers, when it is entered, and how it can be denied or later revoked.
• Bankruptcy Means TestThe income calculation that decides whether a person may file a Chapter 7 case or is steered into a Chapter 13 repayment plan - a comparison of household income against the state median, followed if necessary by a line-by-line deduction of allowed expenses.
• Bankruptcy Trustee and the Meeting of CreditorsThe person appointed to administer a bankruptcy case and the short, sworn examination every debtor must attend - what the trustee is looking for, who actually turns up, and what happens after.
• Chapter 13 BankruptcyA reorganization bankruptcy for individuals with regular income: debts are repaid in part through a court-approved plan.
• Chapter 7 BankruptcyA liquidation bankruptcy: non-exempt property may be sold to pay creditors, and qualifying debts are discharged.
• Collecting a JudgmentWinning a case and being paid are two different things - the second is a separate process the winner has to start.
• Non-Dischargeable DebtsThe debts a bankruptcy discharge does not erase - child and spousal support, most taxes, most student loans, criminal fines, debts from fraud or drunk-driving injuries - and the difference between those that survive automatically and those a creditor must ask the court to preserve.
• Preferences and Fraudulent Transfers (Clawback)The trustee's power to undo payments and transfers made before a bankruptcy was filed - a repayment to a relative, a property signed over to a family member, a creditor paid ahead of the others - and why "I paid my brother back first" is a problem rather than a virtue.
• Reaffirmation AgreementA voluntary agreement in a Chapter 7 case to remain personally liable on a debt - usually a car loan - that the discharge would otherwise wipe out, in exchange for keeping the property; what it costs, the court's role, and the alternatives of redemption and simply continuing to pay.
• Small Business Bankruptcy (Chapter 11 and Subchapter V)The reorganization chapter for a business that wants to keep operating while it restructures its debts, and the streamlined subchapter Congress added for small businesses - who qualifies, how a plan is confirmed, and what happens to the owner's personal guarantees.

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