How do I calculate equity for bankruptcy?

Subtract every lien against the property from its value, then subtract the exemption you claim for that property type. The remainder is nonexempt equity. Value means fair market value as of the petition date under 11 U.S.C. § 522(a)(2), and for personal property in a Chapter 7 or 13 case, replacement value with no deduction for costs of sale under 11 U.S.C. § 506(a)(2).

Do I have nonexempt equity?

You have nonexempt equity only if value minus liens minus your exemption leaves a positive number. If the liens alone exceed the value, there is generally nothing left for the estate. Because exemption amounts differ by state, the same house and mortgage can produce nonexempt equity in one state and none in another. Your state hub carries the applicable figures.

Will the trustee sell my house if I have equity?

A Chapter 7 trustee's authority to use, sell or lease estate property comes from 11 U.S.C. § 363, and the practical question is whether a sale would produce meaningful value after liens and your exemption are paid. A property with no nonexempt equity generally offers the estate nothing. Ask a lawyer how trustees in your district handle modest nonexempt equity.

Does a mortgage count against my equity?

Yes. Every lien against the property reduces equity dollar for dollar before any exemption is applied. That includes first and second mortgages, home equity lines, tax liens and judgment liens. Several states go further and provide that a voluntarily granted lien is not defeated by the exemption at all (RSMo § 513.436; Ala. Code § 6-10-4).

Can a judgment lien be removed if it wipes out my exemption?

11 U.S.C. § 522(f) allows a debtor to avoid the fixing of a judicial lien, or a nonpossessory nonpurchase-money security interest, that impairs an exemption the debtor would otherwise be entitled to. It is a motion with specific content requirements in most districts, including the property value, all liens and the exemption claimed (E.D. Wash. LBR 4003-2; ILCB LR 4003-1).

What value do I use for a used car?

For an individual in a Chapter 7 or Chapter 13 case, 11 U.S.C. § 506(a)(2) sets replacement value as of the petition date, without deduction for costs of sale or marketing. For property acquired for personal, family or household use, replacement value means what a retail merchant would charge for property of that kind given its age and condition.

What if the property is worth less than what I owe on it?

Then there is no equity to exempt and generally nothing for the estate. Under 11 U.S.C. § 506(a)(1), the creditor's claim is secured only up to the value of its interest and unsecured for the rest. Some districts have specific procedures for valuing collateral and determining secured status (CANB official material — Guidelines for Valuing Collateral 1.31.18).

Is the equity math different in Chapter 13?

The valuation and exemption arithmetic is the same, but the consequence differs: Chapter 13 generally works through a plan rather than a trustee sale, and lien treatment is often addressed in the plan or by motion. Some districts require a separate valuation motion referenced in the plan (D. Colo. L.B.R. 3012-1). The Chapter 13 filing fee is $235 (28 U.S.C. § 1930(a)(1)(B)).

Property & exemptions

Calculating Equity Against Liens and Exemptions

Equity for bankruptcy purposes is the property's value minus every lien against it, and then minus the exemption you claim. What remains is nonexempt equity, which is the only part a Chapter 7 trustee has any reason to pursue. Under 11 U.S.C. § 522(a)(2), value means fair market value as of the petition date.

Key points

The calculation is value minus liens minus exemption, done in that order, one item of property at a time.
A mortgage or car loan reduces equity dollar for dollar, so a heavily financed asset often has little or no equity to protect.
Value is measured as of the filing date under 11 U.S.C. § 522(a)(2), not what you originally paid.
For personal property in a Chapter 7 or 13 case, 11 U.S.C. § 506(a)(2) uses replacement value with no deduction for costs of sale.
Exemption amounts come from your state or the federal list under 11 U.S.C. § 522, so the same numbers can produce different results in different states.

If you own a home or a car, the question that keeps people awake is whether a trustee can sell it. That question turns on one piece of arithmetic, and it is arithmetic you can do yourself on paper before you talk to anyone. This page walks through the order of the calculation, what each number means, and where it comes from.

How does the equity calculation actually work?

Take one item of property at a time and run three steps in order. First, write down what the property is worth. Second, subtract every lien recorded against it: mortgage balances, home equity lines, car loans, tax liens, judgment liens. Third, subtract the exemption amount you can claim for that type of property. Whatever is left is nonexempt equity.

A district court filing packet illustrates the lien step directly: a home worth $300,000 with a $200,000 first mortgage leaves $100,000 of remaining property value, and a $150,000 second mortgage against that $100,000 leaves $50,000 as the unsecured portion of the second mortgage (U.S. Bankr. Ct. D. Alaska, The Forms Individuals and Married Couples Need to File Bankruptcy).

If the result of your own math is zero or negative, there is generally no equity for a trustee to reach, and the property is commonly described as having no value to the estate.

Step 1: fair market value of the property
Step 2: minus the balance of every lien against it
Step 3: minus the exemption you claim for that property type
Result: nonexempt equity, which may be zero or negative

What changes the answer?

Four inputs move the result, and each one is contestable. The value you assign is an estimate until someone tests it; a trustee or creditor can disagree. The lien total depends on current payoff balances, not on what you borrowed originally. The exemption depends on which set of exemptions applies to you. And the type of property changes how value is measured.

Timing matters too. Under 11 U.S.C. § 522(a)(2), value is fixed as of the date the petition is filed, or as of the date property becomes part of the estate if that happens later. A rising market after filing does not retroactively create equity for the estate on the filing-date figure.

Which state's exemptions apply is set by a domicile rule in 11 U.S.C. § 522(b)(3)(A), which looks to where you were domiciled for the 730 days before filing, with a further lookback if you moved during that period.

The four inputs and what each one turns on
Input	What it depends on
Property value	Fair market value on the petition date (11 U.S.C. § 522(a)(2)); replacement value for personal property (11 U.S.C. § 506(a)(2))
Lien total	Current payoff balance of each recorded lien, senior and junior
Exemption amount	State or federal list under 11 U.S.C. § 522, selected by the domicile rule in § 522(b)(3)(A)
Property type	Home, vehicle, household goods and tools of the trade each have their own exemption category

What does federal law say about value and secured status?

Two sections do most of the work. 11 U.S.C. § 522(a)(2) defines value as fair market value as of the petition date. 11 U.S.C. § 506(a)(1) then determines how much of a creditor's claim is actually secured: a claim is secured only to the extent of the value of the creditor's interest in the estate's interest in the property, and unsecured for the rest. That is why a second mortgage larger than the remaining value is split into a secured piece and an unsecured piece.

For individuals in Chapter 7 or Chapter 13, 11 U.S.C. § 506(a)(2) sets a specific standard for personal property: replacement value as of the petition date, without deduction for costs of sale or marketing. For household goods, replacement value means the price a retail merchant would charge for property of that kind, considering its age and condition.

11 U.S.C. § 506(d) also voids a lien to the extent it secures a claim that is not an allowed secured claim, subject to stated exceptions.

11 U.S.C. § 522(a)(2) — value means fair market value as of the petition date
11 U.S.C. § 506(a)(1) — a claim is secured only up to the value of the creditor's interest
11 U.S.C. § 506(a)(2) — replacement value for personal property, no deduction for costs of sale
11 U.S.C. § 522(f) — a judicial lien or nonpossessory, nonpurchase-money security interest that impairs an exemption may be avoidable

Where do state and local rules change the math?

The structure of the calculation is federal. The exemption number plugged into step three usually is not. Under 11 U.S.C. § 522(b), an individual debtor may claim either the federal list in subsection (d) or the exemptions available under applicable state and local law, and a state may bar the federal list entirely.

States also define equity differently and carve out which liens the exemption does not touch. Nevada defines equity as fair market value minus the liens excepted from the homestead exemption (NRS 115.005), and sets its homestead exemption at $605,000 of equity (NRS 115.010). Missouri provides that property on which a debtor voluntarily granted a lien is not exempt to the extent of the balance due (RSMo § 513.436). Alabama's homestead article does not defeat a lawfully created mortgage or materialman's lien (Ala. Code § 6-10-4). Oregon's homestead exemptions do not apply to purchase money liens or lawfully executed mortgages (Or. Rev. Stat. § 18.406). Check your state hub for the figures that apply to you.

Some states require you to use their exemptions and bar the federal list (11 U.S.C. § 522(b)(2))
Voluntary liens commonly survive an exemption claim (RSMo § 513.436; Ala. Code § 6-10-4)
Purchase money liens and recorded mortgages are frequently carved out (Or. Rev. Stat. § 18.406)
Hawaii measures the exempt interest as the value over and above liens recorded earlier (Haw. Rev. Stat. § 651-92)

What does this look like in practice?

A district court practice aid works a residence example step by step. A Chapter 7 debtor schedules real estate valued at $150,000, encumbered by a $100,000 first mortgage, a $20,000 second mortgage, tax liens of $6,325, and four judicial liens totaling $10,000. The debtor claims a $23,675 exemption under 11 U.S.C. § 522(d)(1) (Bankr. E.D. Ky. official guidance — Lien Avoidance Practice Aid).

To test whether the lowest-priority judicial lien impairs the exemption, the aid adds the lien being avoided ($4,000), all other liens ($132,325), and the claimed exemption ($23,675) for a total of $160,000, then subtracts the debtor's interest in the property ($150,000). The $10,000 difference exceeds the $4,000 lien, so that entire lien is avoided.

The same worked pattern repeats for each junior lien in reverse priority order. Those figures are the practice aid's illustration, not current exemption amounts.

The § 522(f) impairment worksheet from the Kentucky practice aid
Line	Amount
A. Lien to be avoided	$4,000.00
B. All other liens	$132,325.00
C. Claimed exemption	$23,675.00
D. A + B + C	$160,000.00
E. Value of debtor's interest	$150,000.00
F. D minus E (extent of impairment)	$10,000.00

What documents and information does this take?

The math lives on the official schedules. Schedule A/B reports real estate and personal property values; Schedule C is where you list the property you claim as exempt; Schedule D reports creditors with claims secured by property; Schedule E/F reports unsecured claims. The Summary of Your Assets and Liabilities (Official Form 106Sum) pulls those totals together (Bankr. N.D. Ill. official guidance — Chapter 7 - Additional Documents).

Exemptions are not automatic. Court guidance states plainly that to exempt property you must list it on Schedule C, and that a trustee may sell unlisted property and pay the proceeds to creditors (Bankr. S.D. Iowa official guidance — Instructions - Bankruptcy Forms for Individuals).

Gather, for each item: a value estimate you can support, a current payoff statement for every lien, and recording details for judgment liens. Local rules on lien avoidance motions ask for the property value, each lien holder and amount, and the specific exemption claimed (E.D. Wash. LBR 4003-2; ILCB LR 4003-1).

Schedule A/B — property and its value
Schedule C — the property you claim as exempt (omitting it can forfeit the exemption)
Schedule D — secured claims, with balances
Payoff statements and recorded lien details, including book and page for real property (D. Colo. L.B.R. 3012-1)

What should you ask a lawyer about your own numbers?

Bring your worksheet and ask about the parts that are judgment calls rather than arithmetic. Valuation is the biggest one: a trustee can dispute your figure, and some districts resolve valuation by separate motion heard alongside plan confirmation (D. Colo. L.B.R. 3012-1). In the absence of a written objection, some courts accept the debtor's asserted value.

Ask which exemption set applies given where you have lived, whether a judgment lien on your home might be avoidable under 11 U.S.C. § 522(f), and whether redemption under 11 U.S.C. § 722 is realistic for a financed vehicle. Ask what happens if nonexempt equity exists but is modest.

Also ask about sale mechanics. A trustee's use, sale or lease of property runs through 11 U.S.C. § 363, and a secured creditor may be entitled to adequate protection under 11 U.S.C. § 361. Filing fees are a separate question: the Chapter 7 filing fee is $245 (28 U.S.C. § 1930(a)(1)(A), (f)(1)) and the Chapter 13 filing fee is $235 (28 U.S.C. § 1930(a)(1)(B)).

How would a trustee in this district test my valuation?
Which exemption set applies to me, and why?
Is any lien on my property avoidable under 11 U.S.C. § 522(f)?
If nonexempt equity exists, what are my realistic options?

Frequently asked questions

How do I calculate equity for bankruptcy?: Subtract every lien against the property from its value, then subtract the exemption you claim for that property type. The remainder is nonexempt equity. Value means fair market value as of the petition date under 11 U.S.C. § 522(a)(2), and for personal property in a Chapter 7 or 13 case, replacement value with no deduction for costs of sale under 11 U.S.C. § 506(a)(2).
Do I have nonexempt equity?: You have nonexempt equity only if value minus liens minus your exemption leaves a positive number. If the liens alone exceed the value, there is generally nothing left for the estate. Because exemption amounts differ by state, the same house and mortgage can produce nonexempt equity in one state and none in another. Your state hub carries the applicable figures.
Will the trustee sell my house if I have equity?: A Chapter 7 trustee's authority to use, sell or lease estate property comes from 11 U.S.C. § 363, and the practical question is whether a sale would produce meaningful value after liens and your exemption are paid. A property with no nonexempt equity generally offers the estate nothing. Ask a lawyer how trustees in your district handle modest nonexempt equity.
Does a mortgage count against my equity?: Yes. Every lien against the property reduces equity dollar for dollar before any exemption is applied. That includes first and second mortgages, home equity lines, tax liens and judgment liens. Several states go further and provide that a voluntarily granted lien is not defeated by the exemption at all (RSMo § 513.436; Ala. Code § 6-10-4).
Can a judgment lien be removed if it wipes out my exemption?: 11 U.S.C. § 522(f) allows a debtor to avoid the fixing of a judicial lien, or a nonpossessory nonpurchase-money security interest, that impairs an exemption the debtor would otherwise be entitled to. It is a motion with specific content requirements in most districts, including the property value, all liens and the exemption claimed (E.D. Wash. LBR 4003-2; ILCB LR 4003-1).
What value do I use for a used car?: For an individual in a Chapter 7 or Chapter 13 case, 11 U.S.C. § 506(a)(2) sets replacement value as of the petition date, without deduction for costs of sale or marketing. For property acquired for personal, family or household use, replacement value means what a retail merchant would charge for property of that kind given its age and condition.
What if the property is worth less than what I owe on it?: Then there is no equity to exempt and generally nothing for the estate. Under 11 U.S.C. § 506(a)(1), the creditor's claim is secured only up to the value of its interest and unsecured for the rest. Some districts have specific procedures for valuing collateral and determining secured status (CANB official material — Guidelines for Valuing Collateral 1.31.18).
Is the equity math different in Chapter 13?: The valuation and exemption arithmetic is the same, but the consequence differs: Chapter 13 generally works through a plan rather than a trustee sale, and lien treatment is often addressed in the plan or by motion. Some districts require a separate valuation motion referenced in the plan (D. Colo. L.B.R. 3012-1). The Chapter 13 filing fee is $235 (28 U.S.C. § 1930(a)(1)(B)).

Sources

11 U.S.C. § 522 — Exemptions · official source
11 U.S.C. § 506 — Determination of secured status · official source
11 U.S.C. § 363 — Use, sale, or lease of property · official source
11 U.S.C. § 361 — Adequate protection · official source
11 U.S.C. § 722 — Redemption · official source
Bankr. E.D. Ky. official guidance — Lien Avoidance Practice Aid
U.S. Bankr. Ct. D. Alaska, The Forms Individuals and Married Couples Need to File Bankruptcy
E.D. Wash. LBR 4003-2
ILCB LR 4003-1
D. Colo. L.B.R. 3012-1
CANB official material — Guidelines for Valuing Collateral 1.31.18
Bankr. S.D. Iowa official guidance — Instructions - Bankruptcy Forms for Individuals
Bankr. N.D. Ill. official guidance — Chapter 7 - Additional Documents
NRS 115.005
NRS 115.010
RSMo § 513.436
Ala. Code § 6-10-4
Or. Rev. Stat. § 18.406
Haw. Rev. Stat. § 651-92
28 U.S.C. § 1930(a)(1)(A), (f)(1)
28 U.S.C. § 1930(a)(1)(B)

By Antonio G. Jimenez, Esq. · Florida Bar No. 21022

Last reviewed July 26, 2026 · Sources verified July 26, 2026 · How we verify

Every figure on this page is drawn from a primary legal source and checked against our canonical legal database before publication. Bankruptcy.law is not a law firm and does not provide legal advice.

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