Bankruptcy Exemptions: Protecting Your Assets during the Bankruptcy Process

People filing for bankruptcy must maintain a certain standard of living to function as productive members of society, and thus are entitled to protect various real and personal property under the bankruptcy code.

Bankruptcy exemptions protect these essential possessions, preventing the bankruptcy trustee from seizing and selling them to satisfy creditors’ claims. Bankruptcy exemptions allow you to protect certain assets when filing for bankruptcy.

These bankruptcy exemptions ensure you can keep essential items, like your home, (to a certain extent), a basic car, necessary tools for your profession, clothing, and retirement savings. If an asset is exempt, you don’t have to worry about the bankruptcy trustee taking it away and selling it to pay creditors.

Exempt Assets in Chapter 7 and Chapter 13


Exemptions can vary depending on the type of bankruptcy you file, such as Chapter 7 or Chapter 13. They often have specific dollar limits or may cover the entire value of the asset.

Federal and state laws outline which assets are protected from bankruptcy and the allowable claim amounts.

While some states mandate the use of state-specific exemptions, other states provide the option to choose between federal exemptions and state exemptions. It’s important to note that these two versions cannot be combined.

The specifics of what property can be claimed vary from state to state. While some states have stricter guidelines, others are more lenient. However, most states do have common exemptions that are widely shared.

Additionally, some states offer a “wildcard exemption” that can be used for any property you own up to a certain dollar amount. These exemptions allow individuals to safeguard their essential belongings during the bankruptcy process.

The Bankruptcy Trustee


When claiming exemptions for your property in bankruptcy, it is crucial to do so with care. The bankruptcy trustee overseeing your case will carefully review the exemptions you’ve claimed. If the trustee disagrees with your exemptions, they may initially attempt to resolve the matter informally.

However, the trustee will object to the exemptions used to protect property with the bankruptcy court if they cannot resolve this. Ultimately, it will be up to the judge to decide whether you can retain the property.

Finding a bankruptcy attorney is crucial for bankruptcy exemptions because they have expertise in navigating the complex legal requirements and ensuring you maximize the available exemptions. An experienced attorney can assess your financial situation, help you understand the applicable exemptions, and guide you through adequately claiming and protecting your assets.

They can also represent you in court if any challenges arise regarding your exemptions, increasing the likelihood of a favorable outcome. Having a knowledgeable attorney by your side can significantly enhance your chances of preserving your property and achieving a successful bankruptcy outcome.

Chapter 7 Bankruptcy Exemptions

Chapter 7 bankruptcy is a legal process designed to help individuals struggling with overwhelming debt they can no longer repay.

It is often used for unsecured debts, such as credit card bills, medical bills, or personal loans. Then the court appoints a trustee to sell assets not protected by bankruptcy exemptions.

These nonexempt assets are used to repay your creditors. In bankruptcy, if you can protect an asset with an exemption, the Chapter 7 trustee cannot sell it.

Understanding Property Exemptions: What Can I Keep in Chapter 7 Bankruptcy?

Filing for bankruptcy doesn’t mean you lose all your belongings. Bankruptcy exemptions are in place to ensure that you can keep a reasonable amount of property to help you with a fresh start once the bankruptcy process is complete.

These exemptions provide a fresh start by allowing you to retain certain assets even after filing for bankruptcy.

Most Common Chapter 7 Exemptions

Regarding Chapter 7 bankruptcy exemptions, the specific rules can vary depending on whether the state or federal exemption system is applied.

However, there are common exemptions that are typically allowed. These may include protecting a certain amount of home equity, public benefits, clothing, household goods, tools of the trade, some jewelry, spousal or child support, a portion of a car’s value, insurance benefits, retirement accounts, and personal injury awards in most cases.

These exemptions safeguard essential assets and ensure individuals can maintain a foundation for a fresh start after bankruptcy.

The Chapter 7 Bankruptcy Estate


A bankruptcy estate refers to all the property owned by the debtor who filed for bankruptcy.

Various assets are part of your bankruptcy estate, including property in your possession, property in someone else’s possession (even if borrowed), recently gifted property, future entitlements, proceeds from your property (e.g., rental income), assets received within 180 days after filing (e.g., inheritance or lottery winnings), and your share of marital property.

However, certain assets are exempt from the bankruptcy estate, including specific pensions, educational trusts, and investments necessary for maintaining a job and household.

Keeping Your Bankruptcy Estate Property


The ability to keep a property in Chapter 7 bankruptcy depends on the value of the assets and the exemptions available to your state bankruptcy exemptions. Most Chapter 7 filers can retain all or most of their property thanks to exemptions.

If there is a property you cannot exempt from the bankruptcy estate but still want to keep, purchasing it from the trustee at a negotiated price is possible.

The discounted price would be the asset’s value minus any costs and fees associated with the sale. However, you must show evidence that the funds used for the purchase are not part of the bankruptcy estate. This could include using wages earned after filing for bankruptcy or obtaining a loan from a family member or friend.

Chapter 13 Bankruptcy Exemptions

In Chapter 13 bankruptcy, you keep your property while following a court-approved repayment plan for three to five years. Regular payments allow you to maintain control over your possessions and stop creditor actions such as a home foreclosure if you stay current on mortgage payments within the plan.

Chapter 13 bankruptcy is for people with sufficient income to offer a feasible repayment plan and debt amounts below specified limits. The repayment plan to file bankruptcy considers your disposable income after essential expenses.

While in Chapter 13 the Trustee is not seeking to sell your property if it is not fully exempt, the inability to fully exempt your property in Chapter 13 will affect the monthly payment amount. The value of the non-exempt property determines the repayment to creditors, so maximizing exemptions reduces that value.

The non-exempt total is divided by the number of months (between 36 and 60, or three to five years) in your repayment plan to get to your monthly payment sum.

Personal Items, Vehicle, And Household Goods: Typical Exempt Property

In bankruptcy, the exempted property can include your necessary car, work tools, primary residence, and household belongings that make your house a home. Bankruptcy exemptions may also cover most of the clothes in your closet.


Exempt property in bankruptcy can also include a computer, essential medical supplies, a television (typically limited to one), certain jewelry like a wedding ring, personally created art, and a musical instrument if it supports your livelihood.

Several additional assets can be exempt from bankruptcy proceedings. These include veteran’s benefits, retirement accounts, unemployment benefits, wages earned after filing for bankruptcy, alimony, child support payments, social security benefits, life insurance policies, monetary awards from personal injury cases, and crime victim awards.

Additionally, a wildcard claim can protect assets not covered by any other specific exemption.

Non-exempt Property


Non-exempt property in bankruptcy refers to assets that are not protected and can be sold by the trustee in Chapter 7 to repay creditors.

In Chapter 13, the value of non-exempt property influences the repayment amount for creditors without collateral.

The non-exempt property includes secondary residential properties, additional cars (unless filing jointly), non-retirement investments, recreational vehicles, valuable art, luxury clothing, extra televisions, valuable jewelry, expensive collections, family heirlooms, and non-essential musical instruments.

These assets are subject to potential liquidation or payment in bankruptcy proceedings.

Michigan’s Bankruptcy Exemptions


Here are some common-used Michigan bankruptcy exemptions that can help protect your property during bankruptcy. Additional exemptions are available and may change over time. You can find the Michigan bankruptcy exemption statutes on the Michigan Legislature website. To stay updated, check the Economic Reports section of the Michigan Department of Treasury.

Michigan Homestead Exemption


In Michigan, you can protect up to $46,125.00 in equity in your residence or $69,200.00 if you are over 65 or disabled.

If spouses file together, they cannot double these exemption amounts. Additionally, the surviving spouse of the owner can claim the homestead exemption.

Debtors who hold property in tenancy by the entirety can protect equity against personal debts but not joint debts. Consulting with an attorney is advisable to understand this protection in more detail.

Michigan Motor Vehicle Exemption


In Michigan, filers can safeguard up to $4,250.00 of equity in a motor vehicle.

Michigan Pension and Retirement Account Exemptions


In bankruptcy, most pension and retirement accounts receive complete protection. This includes individual retirement accounts (IRAs), annuities, ERISA-qualified pension plans, profit-sharing plans, and stock bonus plans.

However, contributions made within 120 days before filing may receive insufficient protection.

Specific protections exist for retirement benefits, such as those for firefighters, police officers, legislative members, public school employees, state police, state employees, and judges. These protections ensure the preservation of rights and benefits for individuals in these professions throughout the bankruptcy process.

Michigan Personal Property Exemptions

In Michigan’s bankruptcy code, there are various personal property exemptions available, including burial grounds, milk or cream sales proceeds, a portion of unpaid wages, family pictures, required arms and accouterments, clothing (excluding furs), family cemetery rights, health aids, provisions and fuel for six months, household goods, seats or pews, farm animals and crops, household pets, a computer and accessories, and tools for your profession.

Michigan Public Benefit Exemptions

In Michigan, there are public benefit exemptions available in bankruptcy. These exemptions include compensation for crime victims, veterans’ benefits, welfare benefits, worker’s compensation benefits, and unemployment compensation.

Michigan Insurance Exemptions

In Michigan, there are insurance exemptions that protect against bankruptcy. These include benefits from fraternal benefit societies, insurance benefits regardless of the amount, benefits paid on behalf of an employer, and benefits paid by various types of insurance companies.


In conclusion, securing the assistance of a bankruptcy attorney is essential when it comes to bankruptcy exemptions. Their expertise in the field allows them to effectively navigate complex legal requirements and help you make the most of available exemptions.

By analyzing your financial circumstances, an experienced attorney can guide applicable exemptions and assist you in adequately claiming and safeguarding your assets. Furthermore, they can represent you in court if any challenges arise, significantly improving your prospects for a favorable resolution.

With a skilled attorney, you significantly increase your chances of preserving your property and achieving a successful outcome in your bankruptcy case.