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Can I Keep My Property if I File for Bankruptcy?

One of the most common questions we get is: “Can I keep my property if I file for bankruptcy?”

The answer is usually yes! 96% of Chapter 7 bankruptcy cases result in the filer keeping all their property.

But protecting your property requires some knowledge. Read on for more details.

The Purpose of Bankruptcy Law - A Fresh Start

Bankruptcy was created because Congress believed that Americans who are in financial trouble often need a “fresh start.”

Bankruptcy’s fresh start allows you to shed debt and to re-enter our economy with a brighter financial future. But the purpose of the fresh start would be defeated if you lost the clothes on your back, the roof over your head, and your transportation to work when you filed for bankruptcy. You would need to buy all those necessities again as soon as you exited bankruptcy and would probably have to incur more debt to do it.

Bankruptcy Exemptions

So to protect Americans’ ability to get a fresh start, our government has enacted “bankruptcy exemptions.” These laws are allowed you to keep a reasonable amount of possessions when you file for bankruptcy so you can move forward with your life without becoming a ward of the state that needs to receive public benefits to survive.

Exemptions usually include some amount of equity in your family home, personal property like a vehicle, furniture, clothing, kitchen items, tools used in your trade/profession, retirement accounts, some amount of current wages, child support, alimony, government benefits, and other items. But the amount of these items that you are able to protect varies by state.

Common exemption types are:

Homestead Exemption. This protects your equity in your primary residence that you own and occupy, usually up to a certain amount.

Vehicle Exemption. This protects your equity in your car or other vehicle up to a certain amount.

Wildcard Exemption. This allows you to save property that is important to you and that you wouldn’t be able to protect otherwise, up to certain limits.

Which Exemptions Apply?
The key to knowing whether your property is protected is knowing which “exemption” laws apply.

State Bankruptcy Exemptions
Each state has its own set of bankruptcy exemptions for residents of that state to use. To learn more about your current state’s exemptions, visit Bankruptcy Exemptions by State.

But to use a state’s exemptions, you must have resided in that state for at least the past 2 years (730 days) before filing your bankruptcy case. If you haven’t lived in your current state for at least the past two years, you need to use the exemptions of the state where you resided the longest during the 6 month period (180 days) prior to 2-years before filing.

For example, I moved to New York last year and for the three years before the move, I lived in Maine. If I file for bankruptcy today, I can’t use New York bankruptcy exemptions; I would have to use Maine bankruptcy exemptions.

Federal Bankruptcy Exemptions
Nineteen states allow you to choose between their state exemption system or a separate set of federal bankruptcy exemptions.

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

If you have resided in one of these states for (1) at least the past two years before your bankruptcy filing, or (2) the majority of the 6 month period prior to two years before your bankruptcy filing, then you choose between using the federal bankruptcy exemptions or that state’s exemptions.

This often raises the question - if the federal exemptions allow you to protect more for household goods, but the state exemptions allow you to protect more for vehicles, can you combine the best of both exemption systems? Unfortunately, no. You cannot mix and match from the two different exemptions systems.

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