Nonexempt Property: What Trustees Sell

Why it matters

The line between exempt and nonexempt property decides what you get to keep. This matters most in Chapter 7, where selling nonexempt property is part of the trustee's job.

Exemption rules vary a lot by state. Some states protect a home's full value. Others protect only a slice of the equity. Some let filers pick a federal exemption list instead of their state's list.

Property that commonly ends up nonexempt includes a second vehicle, a boat, vacation property, valuable collections, and investments outside retirement accounts. In practice, most Chapter 7 cases are "no-asset" cases: everything the filer owns is exempt, and nothing gets sold.

In Chapter 13, nonexempt property isn't sold, but its value still matters. It sets a floor for how much a repayment plan has to pay unsecured creditors. Exemption claims are technical and depend on the state, so many filers review them with a bankruptcy attorney before filing.

Example

Dana files Chapter 7 in a state whose exemptions cover her car equity, household goods, and retirement account. They don't cover her paid-off fishing boat, worth about $6,000, which she rarely uses. The boat is nonexempt, so the trustee sells it and gives the proceeds to her creditors. She keeps everything else she listed.

A filer in a neighboring state with a generous wildcard exemption might have protected that same boat. That's why identical property can be exempt in one state and nonexempt in another.