One of the most common—and understandable—questions people have when considering Chapter 7 bankruptcy is:

​

“Will I lose everything?”

The good news is: Probably not.
In most Chapter 7 cases, individuals are able to keep most or all of their property thanks to something called bankruptcy exemptions.

Let’s break down how it works.

​

What Happens to Your Property in Chapter 7 Bankruptcy?

Chapter 7 is known as “liquidation bankruptcy”, meaning the bankruptcy trustee can sell (liquidate) certain assets to repay your creditors. However, not all property is at risk.

Federal and state laws allow you to protect certain types of property using bankruptcy exemptions. If your property falls within these exemptions, you get to keep it.

​

What Property Can You Usually Keep?

Here are examples of commonly exempt property—meaning you typically get to keep it:

• Your home (up to a certain equity limit)

• Your vehicle (if it's modest in value or mostly paid off)

• Household goods and furniture

• Clothing and personal items

• Appliances

• Retirement accounts (401(k), IRA, pensions)

• Social Security and disability benefits

• Tools of your trade (within limits)

Most people who file for Chapter 7 have property that falls entirely within exemption limits, meaning they lose nothing.

​

How Do Exemptions Work?

Exemptions protect equity—the value of an asset after subtracting any loans or liens.

Example:

• Your car is worth $6,000

• You owe $4,000 on it

• You have $2,000 in equity

• If your state’s vehicle exemption is $3,000, you can keep the car

If your equity exceeds the exemption limit, the trustee might sell the asset, pay you the exempt portion, and use the rest to pay creditors.

​

Federal vs. State Exemptions

Each state has its own set of exemption laws. Some allow you to choose between state and federal exemptions, while others require you to use the state exemptions only.

Common exemption categories include:

• Homestead exemption (protects equity in your home)

• Motor vehicle exemption

• Wildcard exemption (can be used on anything)

• Personal property exemptions (clothing, furniture, etc.)

Your attorney will help you choose the option that best protects your assets.

​

Property That May Be at Risk

Some types of property may be vulnerable if:

• Their value exceeds the exemption limit

• You own luxury items (expensive jewelry, boats, collectibles)

• You have a second home or car

• You recently transferred or gifted assets

In these cases, the trustee may sell the non-exempt property and use the proceeds to pay your creditors.

​

Can I Keep Property I'm Still Paying For?

Yes—if you continue making payments and the creditor agrees, you may be able to keep:

• Your car (through a reaffirmation agreement)

• Your home (if you're current on your mortgage)

However, you must stay up to date on payments after filing. If you fall behind, the creditor may still repossess or foreclose, even after bankruptcy.

​

Let’s Review: Will You Lose Everything?

Probably not.
Most people who file Chapter 7 bankruptcy:

• Keep their home and car (if they want to)

• Keep all their personal belongings

• Eliminate unsecured debts (like credit cards and medical bills)

Bankruptcy is designed to give you a fresh start, not to punish you or leave you with nothing.