Can I Keep My Property If I File for Bankruptcy?

Will You Lose Property if You File for Bankruptcy?

In most cases, no, you won’t lose any property when you file for Chapter 7 bankruptcy. 96% of Chapter 7 bankruptcy cases result in the filer keeping all their property.^[1]

Chapter 7 was designed to help people erase unsecured debts — like credit card debt and medical bills — and get a fresh start while also being fair to creditors. This means you get to keep essential personal belongings and property. But if you own expensive items like luxury goods or a fancy car, the bankruptcy trustee is allowed to sell the property to repay your creditors.

Most Chapter 7 bankruptcy filers don’t own expensive jewelry or homes, so this isn’t a problem for most people. The rules that decide what you get to keep are called exemptions. 

How Bankruptcy Exemptions Protect Your Property

Bankruptcy exemptions are laws that outline the specific property and assets you’re allowed to keep when you file for bankruptcy. There is a set of federal bankruptcy exemptions, and some states also have their own state exemptions. If you live in an opt-out state, you’ll be required to use your state’s exemptions when you file your case, assuming you’ve lived there for at least two years.

Exemptions typically cover some equity in your home, a vehicle, household items like furniture and clothing, tools for your job, retirement accounts, a portion of your wages, child support, alimony, government benefits, and other essentials. However, the specific items and amounts you can protect depend on your state’s laws.

Here are three of the most common exemptions:

• Homestead exemption, which protects your equity in your primary residence that you own and occupy, usually up to a certain amount

• Motor vehicle exemption, which protects equity in your car up to a certain amount

• Wildcard exemption, which allows you to save property that is important to you and that you wouldn’t be able to protect otherwise, up to certain limits 

How Do You Know Which Exemptions You Can Use?

Understanding which exemption laws apply is key to knowing whether your property is protected in bankruptcy. Exemption laws vary depending on where you live and how long you’ve lived there, and they also determine whether you’ll use state exemptions, federal exemptions, or have a choice between the two.

State Bankruptcy Exemptions

Each state has its own set of bankruptcy exemptions that residents can use to protect their property. However, to use a state’s exemptions, you must have lived in that state for at least the past two years (730 days) before filing your bankruptcy case.

If you haven’t lived in your current state for at least two years, the rules are a bit more complex. You’ll need to use the exemptions of the state where you lived the longest during the six-month period (180 days) prior to the two years before filing. For example, if you recently moved to New York but lived in Maine for three years before the move, you would need to use Maine’s bankruptcy exemptions, not New York’s.

If this sounds complicated and you aren’t sure which exemptions apply to your case, you can always schedule a free consultation with a qualified bankruptcy attorney. They can provide individualized legal advice specific to your situation.

Federal Bankruptcy Exemptions

Nineteen states allow you to choose between their state exemption system or a separate set of federal bankruptcy exemptions. To qualify to use the federal exemptions in these states, you must meet the same residency requirements as for state exemptions:

• You must have lived in the state for at least two years before filing, OR

• You must have lived in the state the longest during the six-month period prior to two years before filing.

If you live in one of these 19 states, you’ll need to decide which system — state or federal — is better for protecting your property.

Important: You cannot mix and match exemptions from state and federal systems. You’ll need to pick one system and stick with it.

The remaining 31 states, known as “opt-out states,” require you to use their state exemption system. If you live in an opt-out state, federal bankruptcy exemptions won’t be an option. 

State vs. Federal Exemptions: Which Should You Choose?

If you live in one of the 19 states that allow you to choose between state and federal exemptions, which is better? The answer depends on the type and value of the property you own.

• If you own a home: State exemptions often provide better protection for home equity, though this will depend on the state you live in. For example, the federal homestead exemption only protects $27,900 in equity for your primary residence. In contrast, many states offer significantly higher homestead exemptions. For instance, New York allows you to protect at least $82,775 in home equity, and Connecticut offers a homestead exemption of at least $75,000. If you own and occupy a home in these states, choosing the state exemptions can help you protect much more of your equity.

• If you don’t own a home: The federal exemptions might be a better choice. The federal system includes a wildcard exemption that can protect up to $15,425 (a base amount of $1,475 plus up to $13,950 of unused homestead exemption). This wildcard is much higher than what most states offer. For example, in states like New York or Connecticut, filers who don’t own real estate but have other valuable property often choose the federal exemptions to maximize the protection for their assets.

What Happens if You Own Property That Isn’t Exempt?

Sometimes, your property may exceed the maximum value you’re allowed to protect under your state’s exemption laws. When this happens, the portion of the property that isn’t covered is called a non-exempt equity. 

Here’s how that works in practice: Let’s say you own a car worth $10,000, your state’s vehicle exemption only protects $5,000, and there’s no wildcard exemption available to make up the difference. What happens to your car?

In theory, the bankruptcy trustee could seize and sell your car. After selling it, they would give you $5,000 from the proceeds to cover your exemption. The remaining amount would go toward paying your creditors. However, in reality, things don’t always work this way.

Why the Trustee May Not Sell Your Property

Trustees have to spend time and money to seize and sell property. In this example, the trustee would need to pay for towing, auction fees, and other related costs. By the time these expenses are deducted, there might be very little (or even nothing) left to distribute to creditors. Because of this, trustees often prefer to work out a deal with you instead.

For example, the trustee might agree to let you keep your car if you make a cash payment for its non-exempt value. Using the same scenario, the trustee might ask for $2,000 — less than the $5,000 non-exempt amount—because they avoid the hassle and costs of selling the car. Many trustees will even accept monthly payments from your post-bankruptcy wages, making it easier for you to keep your property.

If the car’s value only slightly exceeds the exemption limit — for instance, by $1,000 or less — the trustee might decide it’s not worth the effort to sell it at all. In cases like this, they’ll often let you keep the car without asking for any payment, since the small surplus wouldn’t benefit creditors after deducting sale costs.

Now, compare this to a situation where the non-exempt asset is cash. Let’s say you have $10,000 in cash, but your state’s exemptions only allow you to protect $5,000. In this case, there are no resale costs or complications for the trustee — they would simply require you to hand over the $5,000 surplus to distribute to creditors.

Frequently Asked Questions About Bankruptcy & Property

Here are the answers to some of the most common questions people have about how filing bankruptcy will impact their property.

Does Filing for Chapter 13 Bankruptcy Protect My Property Better Than Chapter 7?

Generally speaking, yes, Chapter 13 bankruptcy can provide stronger protection for certain property than Chapter 7. This is especially true if you have a lot of equity in a home. Chapter 13 is commonly used by homeowners to catch up on mortgage payments without putting their home at risk. To qualify for Chapter 13, you’ll need to prove you have enough income for the payment plan.

That said, Chapter 13 requires filers to commit to a 3–5-year repayment plan. If you aren’t able to stick with monthly payments, your case may be dismissed. If this happens, you may still face foreclosure proceedings or repossession.

Can the Trustee Take My Personal Belongings, Like Furniture or Electronics?

In most cases, no, the bankruptcy trustee won’t take your personal belongings like furniture, clothing, or electronics. These items are usually considered necessities and are protected under bankruptcy exemptions. Both state and federal exemptions include allowances for household goods, which cover things like beds, kitchen appliances, and everyday electronics, up to a certain value.

Unless you own high-value items — such as rare antiques, designer furniture, or luxury electronics — your personal belongings are likely fully protected. If your property’s value does exceed the exemption limit, the trustee could theoretically sell it, but this is rare because household items typically have low resale value. Most people who file for bankruptcy are able to keep all their personal belongings without any issues.

What Happens to My House if I File for Bankruptcy?

If you own a home, you can use the homestead exemption to protect some or all of the equity you have in your primary residence when you file for bankruptcy. The specific amount of equity you can protect depends on which exemptions you use. Equity is equal to your home’s current fair market value minus what you still owe on the loan.

If your equity is lower than the exemption amount, your home should be safe. But if your equity is more than the allowed exemption, it may be at risk in Chapter 7. If you’re a homeowner, it’s best to hire an experienced bankruptcy attorney to help with your case to make sure you can protect this important asset!

Can I Keep My Car if I File for Chapter 7 Bankruptcy?

Most Chapter 7 filers get to keep their car when filing for bankruptcy. To keep your vehicle, your equity in the car must be less than the motor vehicle exemption you’re claiming. If your car is financed, your equity is equal to the car’s current fair market value minus what you still owe on the loan. If you own your car outright, your equity is equal to the car’s current fair market value. You can use websites like Kelley Blue Book to determine the market value of your vehicle.

If your car is financed and you want to keep it, you may need to submit a reaffirmation agreement to the bankruptcy court. A reaffirmation agreement is a legal promise to continue paying your car loan after your bankruptcy is over.

Will I Lose My Retirement Accounts if I File for Bankruptcy?

It’s very unlikely you’ll lose your retirement funds if you file for bankruptcy. Both state and federal exemption systems provide strong protections for retirement savings, such as 401(k)s, IRAs, pensions, and other tax-deferred accounts. Under federal law, most qualified retirement accounts are fully protected, with IRAs having a generous cap of $1,512,350 (as of 2024). Many state exemptions provide similar or even greater protections.

These exemptions are in place to ensure you can maintain financial stability after bankruptcy. However, it’s important to note that contributions made right before filing or accounts not recognized as qualified under the law may not be fully protected, so it’s worth reviewing your specific situation with a licensed attorney if you have concerns.

Let’s Summarize…

Bankruptcy can provide powerful debt relief while allowing most people to keep their property, thanks to exemptions that protect essentials like your home, car, and personal belongings. Chapter 7, often called "liquidation bankruptcy," rarely requires filers to lose property because exemptions usually cover most assets. Chapter 13, on the other hand, lets you keep all your property but requires you to repay creditors through a 3–5-year repayment plan. Understanding how the bankruptcy process works and which exemptions apply to your situation is key to protecting your assets and achieving a fresh financial start.

If you need help filing for bankruptcy, we’re here to help! Take our screener to see if Upsolve can help you get a fresh start.