What Can You Lose If You File For Bankruptcy?

Bankruptcy can be a tough decision to make, but sometimes it is the best option available. It is important to understand the risks and downsides of filing for bankruptcy, as well as the laws that are in place to protect you.

Creditors may be entitled to a portion of your debt repayment, but you may not have to give up everything you own. Bankruptcy is a process designed to help people and businesses get a fresh start, and with careful planning, it can be successful.

Any assets not exempt from bankruptcy may be used to repay your creditors in Chapter 7. These are:

• Vehicles
• Land
• Houses
• Investment Properties
• Savings accounts
• Any other items of value, like artwork or jewelry

Certain exemptions allow individuals to keep a certain value of their assets.

What Can You Keep

Different states have different bankruptcy exemptions, but they all exist to help protect your property during bankruptcy. Exemptions can vary depending on the type of bankruptcy you file for, so it’s important to research before starting the process.

A few different bankruptcy exemptions are commonly used by those who file. Married couples who file jointly can double the exemption amount. The numbers below are for cases filed after April 1, 2022, but note that these amounts will be adjusted again on March 31, 2025.

Home Exempt

You may be able to keep your home when filing for bankruptcy, depending on the value of equity in the property. Under federal guidelines, you can exempt up to $27,900 of equity in a primary residence.

You may be eligible for a homestead exemption on your primary residence, which can include the following:

• A house or another dwelling
• Personal property used as a residence

Car Exempt

Your vehicle can be an important asset, and creditors may try to take it when you file for bankruptcy. However, depending on the type of bankruptcy you file, your vehicle may be exempt from seizure. Exemption laws vary by state, but in general, you may be able to exempt up to $4,450 of equity in your vehicle.

Your equity may exceed the limit for several reasons:

• The trustee can sell your vehicle, give you the exempted amount and use the remainder to pay creditors
• The lender can repossess the car if you’re behind on your payments
• You can surrender the vehicle, which relieves you of the responsibility from the auto loan after bankruptcy

Personal Property Exempt

Many things can be exempt from bankruptcy, including real estate and vehicles. However, personal property may also qualify for an exemption. Here are some of the more common federal personal property exemptions:

• $1,870 for jewelry
• $2,800 for tools of the trade
• $14,875 in aggregate ($700 for each item) for household goods and furnishings, appliances, clothing, animals, books, crops, or musical instruments
• $13,400 in accrued interest, dividend, or loan value of a life insurance contract
• Professionally prescribed health aids.

Benefits, Support, And Retirement Savings Exempt

The following are some benefits, support, and retirement savings that you may be exempt from:

• Alimony, support, or maintenance that you reasonably need for your support
• Life insurance payments that you need for support
• All Social Security benefits, unemployment benefits, veteran’s benefits, public assistance, and disability or illness benefits
• You can keep the proceeds from your retirement accounts up to a maximum aggregate value of $1,512,350.

Personal Injury Exempt

Exemptions for personal injury recovery include:

• $27,900 for personal injury recovery, not including pain and suffering or financial loss
• Compensation for loss of future earnings necessary for the support
• Payment for the wrongful death of a person you depended on for support
• Compensation due to being a victim of a crime

Wildcard Exempt

This can be used for any type of property. The exemption is $1,475 plus $13,950 of any unused portion of your property exemption.

State And Federal Exempt

Different states have different exemption rules for bankruptcy. You can choose to use state or federal bankruptcy exemptions in a few states. However, most states follow the federal exemption rules.

• Alaska
• Arkansas
• Connecticut
• District of Columbia
• Hawaii
• Kentucky
• Massachusetts
• Michigan
• Minnesota
• New Hampshire
• New Jersey
• New Mexico
• New York
• Oregon
• Pennsylvania
• Rhode Island
• Texas
• Vermont
• Washington
• Wisconsin

You will follow federal regulations if your state does not have its laws.

Bankruptcy: Chapter 13 Vs Chapter 7

There are two main types of bankruptcy: Chapter 7 and Chapter 13. Each has advantages and disadvantages, and your bankruptcy choice will affect what assets you keep or lose.

When you file for Chapter 7, most of your debts will be discharged, which means you won’t be responsible for paying them back. However, not all debts can be discharged through bankruptcy, and you’ll need to pass a means test to qualify.

Chapter 7 is often seen as the most accessible option for those struggling with debt, as it completely forgives all debts. However, this route also has the potential downside of losing some nonexempt property – namely, any properties that are not your primary residence. Additionally, the property transfer before filing for bankruptcy may be reversed under Chapter 7.

Chapter 13 enables you to enter into a payment plan to pay off your debt over three to five years. In some cases, the plan period may be extended to seven years. Your disposable income determines the payment plan. This type of bankruptcy aims to protect your property and prevent wage garnishment.

Your bankruptcy filing will harm your credit for ten years (Chapter 7) or seven years (Chapter 13). Although you are not required by law to hire a lawyer for bankruptcy, it may be in your best interest to do so. You may even be able to find free legal services.