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What can I keep in Chapter 7 bankruptcy?

Chapter 7 bankruptcy is also known as “liquidation” bankruptcy because the filer’s assets are liquidated, or sold, in order to pay off as many debts as possible. However, it’s important to point out that not all assets are liquidated as the bankruptcy code considers some property to be “exempt” from the liquidation.

The bankruptcy code considers exempt property to be "necessities of modern life," and it is agreed that taking everything away from bankruptcy filers would be counterproductive. By working with an experienced bankruptcy attorney, many people find that they lose very few assets during the Chapter 7 bankruptcy process thanks to the exemption allowances.

Here are the types of property that are often considered exempt from bankruptcy liquidation, as explained in an article from

  • Motor vehicles
  • Clothing
  • Household goods and furnishings
  • Household appliances
  • Jewelry
  • Retirement savings
  • A limited amount of home equity
  • Trade or professional tools
  • Some unpaid but earned wages
  • Public benefits
  • Damages from personal injury claims

Only motor vehicles, household goods and furnishings, jewelry and tools worth a limited value can be considered exempt. Therefore, it would be difficult to keep luxury items or an excessive number of items. The purpose of the bankruptcy exemption is to allow filers to keep assets that are necessary for life and work.

Therefore, the exemption usually does not apply to second homes, second vehicles, valuable collections, family heirlooms or expensive musical instruments (unless the filer is a professional musician).

States also have their own set of laws for exemptions. In Wisconsin, filers have a choice of either using the state’s exemptions or the federal exemptions.

For more information about Chapter 7 bankruptcy -- or Chapter 13 bankruptcy, which does not involve liquidation -- talk to an experienced bankruptcy attorney in your area.

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