Nell Zhoie April 9, 2018

Filing for a bankruptcy can be a distressing experience. Most people accept and understand that a bankruptcy case does not leave them penniless or destitute. However, what they seem to misunderstand is why or how they can keep some of their properties, and not other properties.

This is where bankruptcy exemptions come in. The properties which the law specifically allows anyone to keep after filing a bankruptcy case are called “exemptions” or “exempt property.”

What are bankruptcy exemptions?

Exemptions entitle you to keep a definite amount of your assets safe after filing a bankruptcy. Chapter 7 bankruptcy determines the exemptions or properties you are entitled to keep such as your home, inexpensive car, clothing, professional tools, personal belongings, and retirement account.

  • What happens to your exemptions? If you are able to exempt an asset, then you never have to worry about an appointed bankruptcy trustee to take it and sell it for your creditors’ benefit. Most exemptions protect specific variations of property. For instance, your furniture, or motor vehicle, up to a specific dollar amount.
  • Wildcard exemptions: Sometimes, a bankruptcy exemption protects your assets entire value. Wildcard exemptions are some exemptions that can be relevant towards any asset you own.

How does bankruptcy exemption work?

If you’re considering to file for bankruptcy, it is crucial to understand how bankruptcy exemptions work. Let’s discuss how exemptions work in Chapter 7 and Chapter 13 bankruptcy:

  • Exemptions in Chapter 7 Bankruptcy

Chapter 7 covers the protection of your particular assets and properties from creditors. Here’s how it works:

Upon completion of your bankruptcy paperwork, you will list all of your properties, assets, and any exemptions you may claim for each item.

If the exemption entirely covers your properties and assets, then you are entitled to keep it. Otherwise, the trustee is authorized to sell any properties that are not covered by the exemption. The trustee will then send the proceeds to your creditors.

  • Exemptions in Chapter 13 Bankruptcy

Meanwhile, Chapter 13 computes the amount of debt you will need to recompense your creditors. Here’s how it works:

In this chapter, you are proposing a plan to recompense your outstanding payments through monthly settlements to a bankruptcy trustee. The amount you pay monthly is determined upon your income, expenses, properties, and debts you have.

  • Debts to pay in full: Some debts are demanded to be fully paid through your plan. These include priority debts (child support, alimony, certain taxes) and mortgage arrears.
  • Debts you can pay monthly: Unsecured debts that are generally non-prioritized such as personal loans, medical bills, and credit cards, don’t have to be repaid back in full.


Now that you have a general idea on how bankruptcy exemptions work, it is time to consult with a bankruptcy lawyer. He/she can guide you throughout your case, review how exemptions work, and help protect your assets and properties.