Bankruptcy Exemptions: 4 Tips on How To Protect Your Assets

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If you are filing for bankruptcy, your head is most likely swimming with questions. One of the main questions bankruptcy lawyers hear is, “what happens to my assets?” 

It’s natural to feel worried about your property or wages when filing for bankruptcy. Let’s explore what exemptions are, how you can use them to your advantage, and discuss information that may be helpful to protect your hard-earned assets. 

When something is exempt, it’s free from an imposed obligation or liability. When you file, some assets are safe from BK filings, and exemption laws exist to allow you to withhold certain assets (such as property) from debt collectors. 

The most common types of personal bankruptcy are Chapter 7 and Chapter 13, and both allow for the protection of property through exemptions. 

How Can I Protect My Assets In Bankruptcy?

According to bankruptcy lawyers, the most common exemptions include personal property, vehicle, and wage exemptions. Let’s explore some information on bankruptcy exemptions so you can learn how to best protect your assets.

1. Understand The Role Of The Bankruptcy Trustee

The moment you file for bankruptcy, the case will create a Bankruptcy Estate. This encapsulates all of your assets, cataloging the value of everything that is non-exempt. The court will then assign you a Bankruptcy Trustee who will guarantee that anything non-exempt of value will go toward paying your debts.

Anything that is not exempt will not be protected, and the Bankruptcy Trustee will use its value to pay your creditors. Be sure you and your lawyer are on the same page concerning your expectations for exemptions before proceeding with the filing.

2. Understand Chapter 7 vs. Chapter 13 Bankruptcy

In Chapter 7 bankruptcy, your non-exempt assets are liquidated. In most Chapter 7 cases, you will be able to list most of your assets and money as exempt, creating a no-asset case

In a Chapter 13 bankruptcy case, there is no liquidation. The court creates a payment plan for you to gradually pay back your debt over a 3-year period. 

Exemptions are subtly different depending on how you file. You can learn more about the differences by reading up on the United States bankruptcy basics from the US court and consulting with your lawyer. 

3. Understand State vs. Federal Exemptions

There are both state and federal exemptions in bankruptcy law, and what you are allowed to claim as an exemption may vary depending on the state you live in.

Some areas require you to comply with your state’s exemption rules, while other states allow you to choose whether federal or state exemptions are more beneficial for your estate. Depending on where you have lived the past two years, your state’s exemption may be more or less generous than the standard federal.

For example, the federal code includes an exemption for your car, as it is categorized as essential to find a job, get groceries, and more. However, the federal government does not consider a $200,000 sports car as “essential.” While you’ll get to claim a certain dollar amount as exempt from paying for transportation, you may not get to keep the Ferrari. 

Your lawyer can help you decide whether choosing federal or state exemptions will allow you to protect more of your assets. 



4. Consider Filing Jointly With A Spouse

In some cases, filing for bankruptcy alongside a spouse can increase your opportunity for exemptions. This phenomenon is called doubling.

If both partners have documented ownership of the assets, doubling allows each to claim the full exemption amount on a certain property. For example, a husband and wife own home with both names listed on the property, and their state exemption law allows debtors to claim $75,000 in home equity. If their area allows for doubling, they can jointly file for bankruptcy and claim a total of $150,000 of equity in their home rather than the standard $75,000.

Filing jointly is a useful way to protect many assets and not just your home. As long as your state allows doubling and both partners jointly own the asset, you should be able to double your exemptions when you file with a spouse.


While our society often views bankruptcy as a last resort, it is a reality that many everyday Americans have to face each year. Whether you’re struggling to pay credit card debt, have an overspending habit, or are facing unprecedented financial trouble due to the pandemic, filing for bankruptcy may still be the best option for you. 

There is no need to be nervous or ashamed to file, and bankruptcy is nothing more than a legal procedure that can help you get a much-needed fresh start. Explore your exemption options with your lawyer today as you continue to educate yourself on the process of filing for bankruptcy.

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