Chapter 7 Exemptions — What Happens to Your Property?

What is Chapter 7 Liquidation?

In Chapter 7 bankruptcy, filers are granted a discharge from certain debts, which means they’ll never have to pay those old bills and they can start fresh again.

However, filers may be subject to the bankruptcy court liquidating (selling) their non-exempt property. This doesn’t happen in most Chapter 7 cases, but it does happen.

The court may decide to sell some of the filer’s non-exempt property if it decides it’s valuable enough to be sold. The profit of that sale then goes to pay off the filer’s creditors.

A bankruptcy lawyer can help you determine whether the bankruptcy court would likely sell any of your property to pay off your creditors.

What’s Exempt Property?

Exempt property is any item or property you own that’s excused from liquidation. To put it simply, an exemption is anything your trustee can’t sell to raise money for your creditors – no matter what happens during the rest of a Chapter 7 case, you can hang on to your exempt assets.

The Big Question: What’s Exempt Under Bankruptcy Law?

This is where your bankruptcy lawyer plays an important role: specific exemptions differ from state to state, so the Chapter 7 exemptions that apply to your case depend on where you live.

Most states, though, excuse similar kinds of property from liquidation, including a home, work tools, a percentage of wages and other personal property. Check out our Chapter 7 bankruptcy law state pages for more information.

So, Will I Lose My Property If I File Bankruptcy?

While this question depends on your specific belongings and circumstances, many people who seek the protection of Chapter 7 bankruptcy find that they have little or no non-exempt property.

In other words, in the eyes of the bankruptcy law, they need everything they own and typically keep most if not all of those possessions.

If you have certain valuable possessions (like a lot of equity in your home) that you’re not willing to part with, you may want to consider filing under Chapter 13 bankruptcy and/or seeking the advice of a bankruptcy lawyer.