What Are You Allowed to Keep When You File Bankruptcy?

Federal and State Exemptions

The federal government provides a variety of exemptions in the U.S. Bankruptcy Code that allow filers to keep property. States, however, can offer their own sets of exemptions that differ from federal exemptions. In some states, filers can choose whether to use federal exemptions or state exemptions; oftentimes filers will be able to keep more assets by using their state exemptions. According to the U.S. Courts website, in some cases, state and federal exemptions cover all possessions in Chapter 7 filings, so no actual liquidation takes place.

It is commonly believed that if you file for bankruptcy you will lose important assets like your car and home. While those with valuable cars and considerable home equity may be forced to sell off their assets, there is an exemption for cars and homes in bankruptcy. The federal Bankruptcy Code states that exempt assets in bankruptcy include "the debtor's aggregate interest, not to exceed $15,000 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence" and "the debtor's interest, not to exceed $2,400 in value, in one motor vehicle." In other words, if you have less than $15,000 in home equity and your car is worth less than $2,400, you may be able to keep both assets. State limits for homes and cars may be significantly higher. For example, single filers in California are allowed a $75,000 exemption for a home.

You can also keep certain household possessions after filing for bankruptcy. According to the federal Bankruptcy Code, you can keep up to $8,000 of home furnishings, household goods, clothing, appliances, books, animals, crops or musical instruments, but no individual item can exceed $400 in value. You can also keep up to $1,000 in jewelry that is held for personal use by you or your dependents. State exemptions may differ from the the basic federal exemptions (see the Resources section of this article).

There is an additional allowance for tools necessary for workers to carry on a trade or business. The federal Bankruptcy Code says that you can keep up to $1,500 of implements, professional books and tools that you or your dependents use to carry on a trade.

A variety of other special benefits are exempt from Chapter 7 liquidation. The Bankruptcy Code states that you still have the right to receive veterans' benefits, disability benefits, Social Security benefits, unemployment benefits and alimony after filing for bankruptcy. In addition, funds saved in a 401(k) plan are protected during bankruptcy.