What are Chapter 7 Bankruptcy Exemptions?

Chapter 7 bankruptcy exemptions allow a debtor to keep property from being seized by the bankruptcy trustee. In a Chapter 7 case, the debtor's estate turns over to the trustee, unless property is protected by an exemption. Most states have more liberal rules for exemptions than then the government. Only 15 states and Washington, D.C., allow debtors to pick and choose between state and federal exemptions.

Chapter 7 Bankruptcy Exemptions Protect Property

Any property in a Chapter 7 case not protected by a state or federal exemptions becomes part of the bankruptcy estate and can be sold by the trustee and the money from the sale divided among the creditors. Exemptions allow a debtor to keep property, recognizing that debtors need the basics of life, including the tools of a trade, in order to emerge from bankruptcy. Finding a way to protect property not covered by Chapter 7 bankruptcy exemptions is one of the main reasons debtors choose Chapter 13.

Federal Chapter 7 Bankruptcy Exemptions

• Vehicles worth up to $3,225
• Property, such as a home, worth up to $20,200
• Household goods, including animals and crops, up to $10,775
• Jewelry worth up to $1,350
• A wild card that can be used on any property, for as much as $1,075
• Up to $20,200 of a personal injury recovery
• IRA's or tax exempt retirement accounts, up to $1,095,000 a person.

Chapter 7 Bankruptcy for States More Liberal Than Federal Exemptions

In most states, the amount of exemptions available for homes, vehicles and household goods is much greater than the federal amounts. Some states protect a home up to $100,000 to $150,000 of its total value, while there are others that exempt the entire value of a home. The same is true of exemptions for vehicles. In fact, some states allow a smaller exemption amount for a second vehicle. Often, bankruptcy trustees will not want to deal with property that is difficult to sell, or that will net a very small amount above the exempted figure. So a used, small vehicle that might be worth slightly more than the exemption for the state may not be seized by the bankruptcy trustee. Also, most states offer increased exemption amounts for married couples, as well as those with children.