What assets can I keep in Chapter 7 bankruptcy?

You may think that if you file Chapter 7 bankruptcy, you'll lose everything. Learn why this isn't usually the case.
Picture of Stephen Dunne, Esq.

Stephen Dunne, Esq.

Philadelphia bankruptcy, credit report, and debt collection abuse attorney

You may think that if you file Chapter 7 bankruptcy, you'll lose everything. Learn why this isn't usually the case.
Picture of Stephen Dunne, Esq.

Stephen Dunne, Esq.

Philadelphia bankruptcy, credit report, and debt collection abuse attorney

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If you file bankruptcy, you are allowed to keep basic assets the court has decided are necessary for your “fresh start.”

That property is referred to as “exempt property.”

When you submit the schedules to start your bankruptcy filing, you claim any property exemptions at that time. If neither the trustee nor your creditors object to these exemption claims, they become final 30 days after your 341 meeting of creditors and are then no longer considered property of your “bankruptcy estate.”

What if everything I own is exempt?

Most Chapter 7 bankruptcy cases are no-asset cases. What that means, if your case is a no-asset case, is that you won’t give up anything to the trustee for the following reasons:

The exemption systems allow you to keep the means of day-to-day life separate from your creditor’s claims. Since the point of bankruptcy is to give you a fresh start, that is only possible if you have something to start over with.

Used household goods and personal effects usually don’t have much resale value, and so they aren’t going to bring in much money with which to pay your creditors.

Your pension or 401(k) retirement plan is not considered property of the bankruptcy estate. Since retirement plans are outside the estate, you don’t even have to claim an exemption to keep them.

If you have an IRA or other form of retirement savings, that MAY be property of the estate, but they are also frequently exempt. The first $1 million of your IRA, plus the cost of living adjustments applied to the balance, is exempt under the bankruptcy code.

How much of my property can I claim as exempt?

This is the one area where bankruptcy law can differ from state to state. Congress has allowed states to choose whether to follow the federal provisions, or use state law.

Twenty states allow debtors to make their own choice of whether to use the federal law on exemptions, or use the laws in their states. The other thirty states require you to use state law.

Pennsylvania law allows debtors to choose between state and federal exemptions, which affords debtors an opportunity to choose the system that best fits their needs.

Your bankruptcy attorney can advise you on the list of exemptions available to you in your state.

What types of property may I add to my exemption list?

If you own a home, are current on the payments, and don’t have too much equity, you have a good chance at keeping your home. Other types of property you can keep include:

  • Equity in your home – $27,900
  • Motor vehicles – $4,450
  • Clothing – $14,875
  • Household goods and furnishings (the contents of an average house) – $14,875
  • Household appliances – $14,875
  • Jewelry – $1,875
  • Pensions, including money in 401k plans – 100 %
  • IRAs and Roth IRAs – $1,512,350
  • Tools of the debtor’s trade or profession – $2,800
  • A portion of unpaid but earned wages – 100 %
  • Public benefits, including public assistance, Social Security, and unemployment compensation – 100 %
  • Damages awarded for personal injury – $27,900

I have moved recently. How long after I move do I have to wait before I can file bankruptcy?

The general rule is that you need to have lived in your new state for at least 91 days to file bankruptcy in the new state.  The court will look to verify your claimed state of residency with the information you provided in your bankruptcy schedules. If challenged, you can use documents like a driver’s license; voter registration; bank account statement; apartment lease; or utility bill to show how long you have lived in the state.

Which state’s exemptions apply to my case?

To use a state’s exemptions, you must have lived there for two years (730 days) to use that state’s exemptions.  If you haven’t lived in that state for two full years, then you have to use the exemptions for your previous state of residence.

If you don’t meet the 730-day rule, because you haven’t resided in the new state for at least 2 years, then the 180-day rule applies. The 180-day rule looks to where you resided in the 180 days before the two years prior to filing your bankruptcy.  In other words, where you lived 910 days (730 + 180) before your bankruptcy filing.  Under the 180-day rule, you can use the state exemptions for the state where you lived the majority of those 180 days.

Example: You have been living in Pennsylvania for the past year. Before living in Pennsylvania, you lived in California for five years. You decide to file for bankruptcy on September 1, 2021. The court will look back in time 910 days to March 6, 2019 to see where you were living and determine which state exemptions you can use based upon your residency at that time. So, in this example, you look to California law to determine which exemptions you can use.

How do I figure out what is exempt, and what isn’t?

The values listed in the statutes refer to what you could get for the item on the market TODAY, not what you originally paid for it, or would have to pay to replace it.

If your asset is subject to a mortgage or a lien, then you calculate the value of the item after deducting what is owed on it. Some liens can be avoided to create something called “exempt equity.” Ask your attorney about this.

If you co-own an asset with someone else who is not filing bankruptcy along with you, the law only looks at your share of the equity in that item.

How can I make sure I get all of my exemption claims correct?

You don’t have to go it alone – an experienced bankruptcy attorney can guide you through the process and make sure everything is done right – so you can finally relax. It’s free to chat with me about your options – you can call or text me at 215.551.7109, or drop me a line.

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