What are exempt and non-exempt assets in bankruptcy?

On Behalf of | Aug 27, 2021 | Chapter 7

If you’re having difficulty envisioning paying off bills that you have, then you may have decided that bankruptcy is your best option.

Many debtors who wish to want to eliminate their debt obligations pursue Chapter 7 bankruptcy because they want to stop collection action and do away with their obligation to pay as many unsecured debts as possible. However, it’s important to keep your exempt and non-exempt property in mind moving forward.

What’s the difference?

Chapter 7 bankruptcy requires the court to recover a debtor’s excess assets and sell them so that the proceeds can be divided according to each creditor’s claims — but only “non-exempt” assets are seized.

The reality is that the vast majority of people who file bankruptcy have “no-asset” cases where everything they have of value falls into an exemption and can’t be seized for their debts. Non-exempt assets are rare, but they include things like:

  • Spare cars or luxury vehicles with a lot of equity
  • Valuable collections, including coins, stamps and artwork
  • Boats and recreational vehicles
  • A secondary residence or vacation home

Texas specifically allows residents to exempt numerous items of value, including:

  • One car, regardless of its value
  • 100% of any retirement plan, such as a 401(k), IRA or Defined Contribution Plan
  • An unlimited homestead exemption provided it meets certain specifications
  • $50,000 in as-is household items, such as appliances, electronics, jewelry, furniture, firearms and clothing

Most jurisdictions allow you to decide whether to follow state or federal exemption and non-exemption requirements. 

How do bankruptcy exemptions impact you?

Most people who file for Chapter 7 don’t have to concern themselves with losing their assets. Learning more about your bankruptcy options can help ease any other worries you may have.