What Can You Keep in a Bankruptcy?

What you get to keep when you file bankruptcy depends on the type of bankruptcy you file and the value of the assets you own. Although a Chapter 7 bankruptcy is known as a "liquidation" bankruptcy and may cause you to lose some assets, there are also some built-in protections known as exemptions to a Chapter 7 case. Chapter 13 bankruptcy typically allows you to keep all your assets.

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy is known as a reorganization plan, because you must file a repayment plan for your creditors if you choose this chapter. If you have a large amount of assets, you may prefer Chapter 13 over Chapter 7, because you do not have to liquidate any of your assets, as you might under Chapter 7. However, you may have to make up to 60 months of payments to creditors instead of selling assets.

Chapter 7 Bankruptcy Exemptions

Chapter 7 may be a better option than Chapter 13 if you do not have a lot of assets. In a Chapter 7 case, you essentially turn over all your property to the bankruptcy court for administration by your bankruptcy trustee for the duration of your case. The Bankruptcy Code provides certain property exemptions that you can use to keep some of your assets out of this "bankruptcy estate" managed by the trustee. At the end of your case, you are allowed to keep all your exempt property.

State Vs. Federal Exemptions

The Bankruptcy Code that provides for debtor exemptions is a federal law, but individual states can determine the applicable bankruptcy exemptions for state residents. As a result, the exemptions to which you are entitled can vary dramatically from state to state. Some states use their own exemptions, others use the federal exemptions, and still others allow residents to choose between federal or state exemptions. What you get to keep in a Chapter 7 bankruptcy ultimately depends on which system your particular state follows. Most states offer exemptions that protect pensions, alimony and child support payments, public benefits, and retirement plans. Homes, motor vehicles and other types of real and personal property are often exempt only to a certain dollar amount, although some states, such as Florida, allow you to keep your home regardless of its value.

Non-Exempt Assets

Technically, you must relinquish to the bankruptcy trustee any property you own that is "non-exempt," or above the applicable exemption in your state. Your trustee sells your property and returns the dollar amount of the exempt property, if any. In practice, many bankruptcy trustees do not actively pursue assets that have only a small amount of non-exempt value, and they often allow you to buy back non-exempt property if you have the money.