Exemptions/Exempt Property

Daisy Rogozinsky
June 13, 2022

If you file for bankruptcy, you will have to turn over much of your property to your bankruptcy estate. However, you will not have to turn over exempt property. In this article, we define and give examples of exempt property. 

Key Takeaways

  • Exempt property is property that cannot be seized and sold off in order to satisfy the debts of a debtor who filed for bankruptcy
  • Necessities of modern life required to maintain a job and household such as clothing and home furnishings are usually considered exempt
  • The exact property that is and is not considered exempt varies from state to state
  • Some states also give debtors the option of choosing between a state exemption list and the federal exemption list

What Are Exemptions and Exempt Property?

In Chapter 7 and Chapter 13 bankruptcy, a large number of a debtor’s assets must be turned over to a bankruptcy estate. The bankruptcy estate is managed by a bankruptcy trustee who sells off the property in order to pay creditors. 

However, not all property can be sold. Exempt property is any property that creditors cannot seize and sell in order to satisfy debts. In contrast, non-exempt property is any property that cannot be exempted. 

Which Property Can and Cannot Be Exempted? 

The goal of bankruptcy is to help debtors get back on their feet, so it is not intended to take everything that a debtor has left. That is why, generally speaking, exemptions are given to property that an individual needs to maintain a job and household, otherwise called necessities of modern life. The exact property that is considered exempt differs from state to state, but it can include things like:

  • Clothes
  • Jewelry up to a certain value
  • Home furnishing
  • Household goods
  • Appliances
  • Small amounts of equity in a house or car
  • Tools of the debtor’s trade or profession
  • Tax-exempt retirement plans
  • A portion of unpaid but earned wages
  • Public benefits accumulated in a bank account such as welfare, social security, and unemployment compensation 
  • Damages awarded for personal injury

In contrast, property that typically cannot be exempted includes:

  • Collections of valuable items such as stamps and coins
  • Family heirlooms
  • A second home or vacation home
  • Expensive musical instruments, with an exception if the debtor is a professional musician
  • A second car or vehicle
  • Cash, bank accounts, stocks, bonds, and other investments

Additionally, some states give debtors a choice between the state exemption list and federal bankruptcy exemptions. The exact list it is best for an individual to choose will depend on the type of property that they own. 

To help you understand which property of yours will and will not be exempt, and to help you decide whether to choose the state or federal exemption list, it is highly recommended to work with an experienced bankruptcy attorney.

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