What you keep in bankruptcy

In Chapter 7, a trustee can sell unprotected assets and use the money to pay your creditors. In Chapter 13, you keep everything, but you may have to pay creditors at least the value of your unprotected property through your plan. Exemptions in both chapters determine what you can and can’t keep.

How do exemptions work?

Each exemption protects a type of property up to a certain dollar amount. Federal exemptions include:

• Home equity up to $31,575
• Vehicle equity up to $5,025
• Household goods and clothing up to $800 per item, $16,850 total
• Wildcard: $1,675 for any property, plus up to $15,800 of any unused home exemption

(These amounts double for married couples filing together.)

A lot of states use their own exemptions instead of the federal ones, and they vary a lot. Some protect very little home equity. Others, like Florida and Texas, protect a primary home with no dollar cap at all. Usually, you need to have lived in a state for two years to use its exemptions.

Your home

The key number is your equity. If your home is worth $250,000 and you owe $230,000, your equity is $20,000. If your homestead exemption covers that, the trustee has nothing to gain by selling, and your home is safe.

In Chapter 7, you have to keep paying your mortgage to keep the house. If you're behind, Chapter 7 can delay a foreclosure, but it can't stop it for good.

In Chapter 13, you can spread missed mortgage payments over your repayment plan and keep your home, which is why many homeowners choose this chapter.

Your car

The same equity rule applies here as to your home. If your car is worth $12,000 and you owe $10,000, your equity is $2,000, which fits within most vehicle exemptions.

If you have a car loan in Chapter 7, you usually have three choices:

• Reaffirm the loan, agreeing to keep paying it after bankruptcy.
• Redeem the car by paying the lender its current value in one lump sum.
• Surrender the car and walk away from the debt.

Reaffirming means you'll still owe the debt after your case. Only do it if you can afford it, and the car is worth keeping.

In Chapter 13, you can catch up on missed car payments through your plan. In some cases, you can even lower the balance to the car's value.

Your paycheck

Filing stops wage garnishment right away. In Chapter 7, money you earn after you file is yours to keep. Wages you'd already earned but hadn't been paid when you filed are part of your case, but they can usually be protected, too.

In Chapter 13, part of your future income goes toward your plan payment. The rest is yours for living expenses.

Retirement and benefits

401(k)s and most employer retirement plans are \ protected. IRAs are protected up to more than $1.7 million. Social Security, unemployment benefits, veterans' benefits, and public assistance are protected, too.

Bank accounts and tax refunds

Cash and money in the bank count as property, and so does a tax refund you're owed when you file. These can be protected with a wildcard exemption, but timing matters. Ask your attorney before you file if you're expecting a big refund.