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When you file for bankruptcy relief, one of your top concerns is keeping your property. A common bankruptcy myth is that people who file bankruptcy lose their property. However, that is not the case. Most property is exempt in the typical bankruptcy case.

Most people keep all their property when they file a Chapter 13, Chapter 7, or Chapter 11 bankruptcy case. They may voluntarily surrender property to get rid of secured debt payments, but bankruptcy exemptions generally protect most of their property from their creditors. 

What is a Bankruptcy Exemption?

Bankruptcy exemptions are included in the federal Bankruptcy Code. Exemptions protect the equity in property from being used to pay your debts. In other words, if the equity in your property is less than the exemption, the Chapter 7 trustee is not interested in selling the asset because there would be no money left over to pay your creditors. In a Chapter 13 case, bankruptcy exemptions help keep your Chapter 13 payment as low as possible. 

You can learn how an exemption is used to protect your home, car, and other assets in our article, “Bankruptcy Homestead Exemptions by State in 2020” and our blog, “How Much Cash Can You Keep in Chapter 7 and Chapter 13.

What Does the Federal Bankruptcy Exemptions Protect?

The dollar amounts of the federal bankruptcy exemptions are adjusted every three years for inflation. The last dollar adjustment of the federal bankruptcy exemptions took effect on April 1, 2019. Therefore, the next changes will take effect on April 1, 2022. The Federal Register typically publishes the changes to the federal bankruptcy exemptions every three years.

In this article, we review the current dollar amounts for the most commonly used federal bankruptcy exemptions. A bankruptcy lawyer reviews your assets and analyzes the bankruptcy exemptions to maximize asset protection in a bankruptcy case.

Common Federal Bankruptcy Exemptions:

Homestead – § 522(d)(1)$25,150
Motor Vehicle – § 522(d)(2)$ 4,000
Household Goods – § 522(d)(3)Total Limit $13,400. Item Limit $625
Spousal Support and Child Support – § 522(d)(10)(D)An amount necessary for reasonable support.
Social Security, Unemployment, Veterans’ Benefits – § 522(d)(2)(10)(A and B)Unlimited
Public Assistance Benefits – § 522(d)(2)(10)(A)Unlimited
Jewelry – § 522(d)(4)$ 1,700
Loan value or cash value of life insurance policies   § 522 (d) (8)$13,400
Wild Card – § 522(d)(5) Any property. Unused homestead under § 522(d)(1)
$ 1,325 $12,575
Tools of the Trade – § 522(d)(6)$ 2,525
Health Aids § 522(d)(6)Unlimited
Unmatured Life Insurance – § 522(d)(8)$13,400
Personal Injury Claims (except for pain and suffering or pecuniary losses) – § 522(d)(11)(D)$25,150
IRAs and Roth IRAs – 11 U.S.C. § 522(d)(12) and         § 522(b)(3)(C)$1,362,800
Retirement Accounts Exempt from Taxation – § 522(d)(2)(12)Unlimited
Awards for Criminal Restitution – § 522(d)(2)(11)(A)Unlimited
Recovery for Wrongful Death of a Person Relied on for Support – § 522(d)(2)(11)(B)Unlimited

Can Everyone use Federal Bankruptcy Exemptions?

No, you may not be entitled to use federal bankruptcy exemptions when you file for bankruptcy relief. States may “opt out” of the federal bankruptcy exemptions. If a state opts out, the state must provide a list of state bankruptcy exemptions for debtors to use.

A debtor that has lived in a state for at least 730 days before filing for bankruptcy relief must follow that state’s laws regarding exemptions. 

If the debtor has not resided in the state in which they are filing bankruptcy for at least 730 days before filing bankruptcy, they must use the state law in the state of residence for the majority of 180 days before the 730-day residency requirement.

Some states allow debtors to choose between federal bankruptcy exemptions and state bankruptcy exemptions. Those states are:

District of ColumbiaHawaiiKentucky
New HampshireNew JerseyNew Mexico
New YorkOregonPennsylvania
Rhode IslandTexasVermont

If you live in a state that is not on the list, you must use the state bankruptcy exemptions for that state if you meet the 730-day residence requirement. 

Why Does the Bankruptcy Code Include Bankruptcy Exemptions?

The purpose of filing for bankruptcy relief is to receive a fresh start that is free from the overwhelming burden of debt. To recover and rebuild after a financial hardship, a debtor must have the ability to provide for his or her basic needs, such as housing, transportation, and personal care. If a person lost all property in a bankruptcy case, it would be impossible for that person to recover from a financial crisis. 

Therefore, legislators included federal bankruptcy exemptions in the Bankruptcy Code to protect the assets that a debtor needs as the debtor works to improve their finances and financial wellbeing. 

Most people file for bankruptcy relief because of life events that were out of their control that caused financial distress. Common reasons for filing bankruptcy include unemployment, sudden illnesses, accidental injuries, divorce, loss of a family member, and business failures. However, even when a person has debt problems because of financial mismanagement or overuse of credit, the person enjoys the same protections and benefits from filing bankruptcy. 

Do You Need Help with a Bankruptcy Filing?

If you are struggling with debts you cannot pay, you might want to explore bankruptcy options. Filing Chapter 7 bankruptcy or filing Chapter 13 bankruptcy may be the best way for you to get rid of debts to get a fresh start. 

When you file for bankruptcy relief, you want to ensure that you maximize asset protection with bankruptcy exemptions. A bankruptcy lawyer is the best person to analyze your case and determine if bankruptcy exemptions protect all of your property. 

We can help you locate a bankruptcy lawyer near you that offers free bankruptcy consultations. If you want more information or if you need to talk to a bankruptcy lawyer, contact Ascend by calling 833-272-3631 or using our easy online tool for finding a bankruptcy lawyer near you.

Post Author: Ben Tejes

Ben Tejes is a co-founder and CEO of Ascend Finance. Before Ascend, Ben held various executive roles at personal finance companies. Ben specializes in Chapter 13 Bankruptcy, Debt Settlement, Chapter 7 Bankruptcy and debt payoff methods. In his free time, Ben enjoys spending time going on adventures with his wife and three young daughters.

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