Exempt Property: What You Get to Keep

Why it matters

Exemptions are why the bankruptcy horror story — "they take everything" — is mostly a myth. In most consumer Chapter 7 cases, exemptions cover everything the filer owns, and nothing gets sold. But the details are fiercely state-specific. Each state sets its own exemption list. Some states let you choose between the state list and the federal one. Dollar limits vary enormously from state to state, and rules about how long you've lived somewhere decide which state's list applies to you. The same car or the same home equity can be fully protected in one state and exposed in another. Choosing and applying exemptions is legal strategy, and it's one of the strongest reasons bankruptcy filers benefit from an attorney. Exemptions also matter outside bankruptcy — they protect property and certain income from judgment collection too.

Example

Gia files Chapter 7 owning a $6,000 car, ordinary furniture, and a small 401(k). Under her state's exemptions, all of it is protected. The trustee sells nothing, and she keeps her property while her unsecured debts head toward discharge. Her cousin lives in another state with $40,000 of home equity and a lower homestead limit. That cousin faces a genuinely different calculation — exactly what an attorney maps out before anyone files.