Property and Exemptions in Bankruptcy: Common Questions Answered

How does the property side of bankruptcy actually work?

There are two steps, and running them together is where most confusion comes from.

First, filing creates an estate. Under 11 U.S.C. § 541, commencing a case creates an estate comprised of all legal or equitable interests of the debtor in property as of the commencement of the case, wherever located and by whomever held. On paper, that is broad: your house, your car, your bank balance, your belongings.

Second, exemptions pull property back out. 11 U.S.C. § 522 provides that notwithstanding section 541, an individual debtor may exempt from property of the estate the property listed in either of two alternative paragraphs. As one court's guidance puts it, in a Chapter 7 case the trustee may sell your property to pay your debts, subject to your right to exempt the property or a portion of the proceeds from the sale.

So the estate is the starting pool, and exemptions are the claim you make against it.

• Step one: filing creates the estate (11 U.S.C. § 541).
• Step two: you claim exemptions out of the estate (11 U.S.C. § 522).
• Property you validly exempt is what court guidance calls exempt property.

What changes the answer for a particular person?

Several things move the outcome, and none of them are guesses you should make on your own.

Equity matters more than what a thing is worth. Exemptions apply to your interest in property, and 11 U.S.C. § 522 defines "value" as fair market value as of the date of the filing of the petition. What sits behind that value — a mortgage, a car loan — is a separate question, because a discharge does not remove a lien.

Your state matters, because states may set their own lists. Some states substitute their own scheme entirely: Colorado law states that the exemptions provided in section 522(d) are denied to residents of that state (Colo. Rev. Stat. § 13-54-107). Others, like California, allow a choice between two in-state lists (Cal. Civ. Proc. Code § 703.140).

Marital status matters too. In a joint case, spouses cannot split between the two alternative federal paragraphs — one may not elect one list while the other elects the other.

What does federal law say about exempt property?

11 U.S.C. § 522 is the controlling provision, and its structure is worth knowing.

Subsection (b)(1) gives an individual debtor a choice between two alternative lists — the federal list specified in subsection (d), or the applicable federal-plus-state-and-local list under subsection (b)(3). The (b)(3) route reaches any property exempt under federal law other than subsection (d), or under state or local law applicable where the debtor's domicile has been located for the 730 days immediately preceding the filing date.

Two categories under (b)(3) are worth flagging. It covers interests held as a tenant by the entirety or joint tenant, to the extent that interest is exempt from process under applicable nonbankruptcy law. It also covers retirement funds, to the extent those funds are in a fund or account exempt from taxation under sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.

The statute also addresses dischargeable taxes: section 522(c)(1) provides that dischargeable tax claims may not be collected out of exempt property.

• Two alternative lists — the § 522(d) federal list, or the state-and-other-federal-law list under § 522(b)(3).
• Value is measured as of the petition date, not what you paid.
• Retirement funds in tax-exempt accounts are addressed expressly by § 522(b)(3)(C).

Where do state rules change things?

This is the part of the answer that genuinely turns on where you live, which is why the amounts belong on the state pages rather than here.

11 U.S.C. § 522(b)(2) makes the federal list available unless the state law applicable to the debtor specifically does not so authorize. States have used that power in different directions:

Some opt out entirely. Alabama provides that in cases under Title 11 there shall be exempt only property and income exempt under Alabama law and under federal laws other than subsection (d) of section 522 (Ala. Code § 6-10-11). Missouri and Colorado take the same approach (RSMo § 513.427; Colo. Rev. Stat. § 13-54-107). Michigan sets out its own bankruptcy-specific list (Mich. Comp. Laws § 600.5451), and so do Georgia (O.C.G.A. § 44-13-100), West Virginia (W. Va. Code § 38-10-4) and Arkansas (Ark. Code Ann. § 16-66-218). Maine limits filers to § 522(b)(3)(A) and (B) with a residence carve-out (14 M.R.S. § 4426).

For the figures that apply to you, use your state's exemptions page — those are published per state with their own citations and dates.

• Opt-out states replace the federal list with their own scheme.
• Some states let you choose between two in-state lists.
• The 730-day domicile rule in § 522(b)(3)(A) decides which state's list you use.

What does this look like in practice?

In practice, the trustee's interest is in non-exempt value — property that could produce money for creditors after your exemption claim.

Court guidance describes the everyday version plainly: exemptions may enable you to keep your home, a car, clothing and household items, or to receive some of the proceeds if the property is sold. That is why many consumer Chapter 7 cases end with the filer keeping their ordinary belongings.

Secured property follows a different track. 11 U.S.C. § 521 requires a debtor whose schedules include debts secured by property of the estate to file a statement of intention regarding retention or surrender of that property, specifying whether it is claimed as exempt, whether the debtor intends to redeem it, or whether the debtor intends to reaffirm the debt. That statement is due within 30 days of filing or by the creditors' meeting, whichever is earlier.

Redemption is its own option: 11 U.S.C. § 722 lets an individual debtor redeem tangible personal property intended primarily for personal, family or household use by paying the lienholder the amount of the allowed secured claim in full.

• Retain, surrender, redeem or reaffirm — the choices § 521 asks you to state for secured property.
• Redemption under § 722 means paying the allowed secured claim at once, not over time.
• A lien that existed before filing generally passes through the case unaffected.

What documents and information are involved?

Property questions are answered on paper, and the forms are specific.

11 U.S.C. § 521 requires you to file a list of creditors and, unless the court orders otherwise, a schedule of assets and liabilities, a schedule of current income and expenditures, a statement of financial affairs, copies of payment advices received within 60 days before filing, and a statement of monthly net income.

Exemptions have their own form, and court guidance is blunt about it: exemptions are not automatic, and to exempt property you must list it on Schedule C: The Property You Claim as Exempt (Official Form 106C). If you do not list the property, the trustee may sell it and pay the proceeds to your creditors.

Schedule A/B: Property (Official Form 106A/B) is where you inventory what you own, and it is more detailed than most people expect — cash on hand, each deposit account, bonds and traded stock, retirement and pension accounts, security deposits and prepaid rent, insurance policies, claims against third parties, and business-related property.

• Schedule A/B: Property — the full inventory of what you own.
• Schedule C (Official Form 106C) — the exemptions you are claiming.
• Statement of intention for property securing a debt, under § 521(a)(2).
• Everything is signed under penalty of perjury; corrections are made by filing an amendment.

What should you ask a lawyer?

The questions below are the ones that get you a useful answer quickly, because each one turns on a judgment call rather than a lookup.

One court's own materials make the point that neither the court nor the clerk's office can give legal advice, and that their guides are not a substitute for legal advice specific to your situation. That is the gap a bankruptcy lawyer fills, and property questions are where it matters most — the difference between exempt and non-exempt is where a case is won or lost.

Bring your numbers. What you owe on the house and car, what you think each is worth today, where you have lived for the past few years, and what is in any retirement account. A lawyer can work with rough figures; they cannot work with nothing.

Ask about timing too. 11 U.S.C. § 541 pulls in certain property you become entitled to acquire within 180 days after filing — by bequest, devise or inheritance, by a property settlement or divorce decree, or as a life insurance beneficiary.

• Which exemption list applies to me, given where I have lived?
• Is there non-exempt equity in my home or vehicle, and what happens to it?
• For each secured debt, is retaining, surrendering, redeeming or reaffirming better in my situation?
• Is there anything coming to me in the next 180 days that § 541 would pull into the estate?
• Are any of my debts likely to survive the discharge under § 523?

Frequently asked questions

Will I lose everything if I file bankruptcy?

That is not how the system is built. Court guidance describes exemptions as potentially enabling you to keep your home, a car, clothing and household items, or to receive some of the proceeds if property is sold. The estate created under 11 U.S.C. § 541 is broad, but 11 U.S.C. § 522 lets an individual debtor claim listed property back out of it. What is actually at risk is non-exempt value, which depends on your equity and your state's list.

Are exemptions automatic once I file?

No. Court guidance states plainly that exemptions are not automatic: to exempt property you must list it on Schedule C: The Property You Claim as Exempt (Official Form 106C). If you do not list the property, the trustee may sell it and pay the proceeds to your creditors. This is one of the strongest arguments for having someone experienced prepare your schedules rather than doing it in a hurry.

Does bankruptcy get rid of the mortgage or car lien?

Generally not. A discharge order relieves the debtor of the personal obligation to pay the debt, but valid liens against the debtor's property that existed before filing generally pass through the bankruptcy unaffected. Court guidance notes that certain liens may be avoided during bankruptcy or satisfied through a plan. A creditor may still have the right to foreclose a home mortgage or repossess an automobile after discharge.

Can I choose the federal exemption list instead of my state's?

Only if your state permits it. 11 U.S.C. § 522(b)(2) makes the federal list available unless the applicable state law specifically does not so authorize. Several states have opted out — Alabama, Missouri and Colorado among them — and others substitute their own bankruptcy-specific lists. Which state's law applies turns on where your domicile has been located for the 730 days before you file.

What happens to my retirement account?

Retirement funds are addressed expressly. 11 U.S.C. § 522(b)(3)(C) covers retirement funds to the extent those funds are in a fund or account exempt from taxation under sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986. You still list every retirement or pension account on Schedule A/B, including IRA, ERISA, Keogh, 401(k) and 403(b) interests. Talk to a lawyer before withdrawing anything.

What does it cost to file?

There are separate federal fees. A Chapter 7 case carries a $245 filing fee (28 U.S.C. § 1930(a)(1)(A), (f)(1)), a $78 administrative fee (Bankruptcy Court Miscellaneous Fee Schedule, Item 8, effective December 1, 2023) and a $15 trustee surcharge (Bankruptcy Court Miscellaneous Fee Schedule, Item 9, effective December 1, 2023). A Chapter 13 case carries a $235 filing fee (28 U.S.C. § 1930(a)(1)(B)) plus the same $78 administrative fee. Attorney fees are separate.

Does moving to a different state change my exemptions?

It can. 11 U.S.C. § 522(b)(3)(A) applies the state or local law of the place where the debtor's domicile has been located for the 730 days immediately preceding the filing date. If your domicile has not been in a single state for that period, the statute looks to where it was located for the 180 days immediately preceding the 730-day period, or for the longer portion of that 180-day period. Recent moves are worth raising early.

Sources

• 11 U.S.C. § 522 — Exemptions · official source
• 11 U.S.C. § 541 — Property of the estate · official source
• 11 U.S.C. § 521 — Debtor's duties · official source
• 11 U.S.C. § 722 — Redemption · official source
• 11 U.S.C. § 523 — Exceptions to discharge · official source
• 11 U.S.C. § 101 — Definitions · official source
• Bankr. N.D. Iowa official page — FAQs: Debtor
• Bankr. S.D. Iowa official guidance — Instructions - Bankruptcy Forms for Individuals
• U.S. Bankr. Ct. D. Ariz., Choosing Your Chapter: What can Bankruptcy do for you? What will it do to you?
• U.S. Bankr. Ct. D. Alaska, The Forms Individuals and Married Couples Need to File Bankruptcy
• U.S. Bankr. Ct. M.D. Ala., Consumer Pro Se Debtors Guide
• Ala. Code § 6-10-11
• RSMo § 513.427
• Colo. Rev. Stat. § 13-54-107
• Mich. Comp. Laws § 600.5451
• Cal. Civ. Proc. Code § 703.140
• O.C.G.A. § 44-13-100
• W. Va. Code § 38-10-4
• Ark. Code Ann. § 16-66-218
• 14 M.R.S. § 4426
• 28 U.S.C. § 1930(a)(1)(A), (f)(1)
• 28 U.S.C. § 1930(a)(1)(B)
• Bankruptcy Court Miscellaneous Fee Schedule, Item 8
• Bankruptcy Court Miscellaneous Fee Schedule, Item 9

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