The 95% Reality
About 95% of Chapter 7 cases are "no-asset" cases -- the trustee finds nothing to liquidate because exemptions protect everything the debtor owns. The popular image of bankruptcy as "losing everything" is a myth for the vast majority of filers.
Exemptions are the legal tool that protects your property. Every state has its own exemption laws, and some states allow you to choose between state and federal exemptions.
What's Typically Protected
- Your home -- up to your state's homestead exemption (varies from $5,000 to unlimited)
- Your car -- up to your state's vehicle exemption (typically $2,500-$6,000 in equity)
- Retirement accounts -- 401(k), IRA, pension: protected without limit (ERISA) or up to $1.5M (IRAs)
- Household goods -- furniture, appliances, clothing: broadly protected
- Tools of your trade -- equipment you need for work
- Public benefits -- Social Security, unemployment, disability, veterans benefits
- Personal injury awards -- varies by state
When Assets Are at Risk
Assets exceed exemptions when: you have significant home equity in a low-exemption state, you own a paid-off vehicle worth more than the exemption, you have large bank account balances, or you own investment properties, boats, or other valuable non-exempt property.
Pre-filing planning (done with your attorney) can sometimes convert non-exempt assets to exempt ones legally. Example: using non-exempt cash to pay down a mortgage or purchase needed exempt items.
Federal vs. State Exemptions
Some states let you choose between state exemptions and federal bankruptcy exemptions (11 U.S.C. section 522(d)). Federal exemptions include a $27,900 homestead exemption, $4,450 vehicle exemption, and a $1,475 wildcard that can be applied to any property. Compare at bankruptcyexemptionsbystate.com.
Frequently Asked Questions
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Last updated: April 2026. Not legal advice.
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