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Chapter 7: Exempt or Non-exempt Property

For any debts that they have, people who file bankruptcy seek protection from creditors. This power is granted by the U.S. Constitution to the federal government. The federal government established the U.S. Bankruptcy Courts as well as the Bankruptcy Code in order to manage bankruptcy proceedings throughout the country.

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A bankruptcy trustee will manage the bankruptcy estate, which is a large portion of a person’s property. This bankruptcy estate is managed by a bankruptcy trustee who sells the property to raise funds to pay debtors’ creditors.

A bankruptcy debtor doesn’t necessarily have to give everything over to the bankruptcy estate. The Chapter 7 liquidation case requires that the debtor turn over certain property to the bankruptcy trustee. Whether they are individuals or businesses, debtors are often rightly concerned about which property they can keep and what they have to give up.

How exemption works

After bankruptcy proceedings, debtors can keep certain property. This property is known as “exempt” and is exempted from bankruptcy estate.

Non-exempt property is property that can’t be exempted. A bankruptcy debtor is generally allowed to exempt certain amounts of his or her property from bankruptcy. This can save most of the property of someone who is going through bankruptcy.

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The “necessities” of modern life can be described as property that is exempt. It generally refers to items that are essential for daily living and work. Bankruptcy law aims to get debtors out from deep debt and back on their feet. Bankruptcy law recognizes that taking everything away from people is counterproductive. Items that are not essential for daily living or working are generally considered non-exempt property.

A general guideline has been established by court rulings and practice experience as to what property is exempt or not. Here are some examples of property that a Chapter 7 borrower will have to surrender (“non-exempt”) and property that they may keep (“exempt”) property.

  • Property that is not exempt
  • The following items are usually given up by the debtor:
  • If the debtor is not a professional musician, expensive musical instruments
  • Collecting stamps, coins and other valuable items

Family heirlooms

  • Bank accounts, cash, stocks, bonds and other investments
  • A second vehicle or truck
  • Vacation or second home

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Property that is exempt

  • The following are examples of exempt property (items a debtor can usually keep):
  • Motor vehicles up to a specified value
  • Clothing that is reasonable and necessary
  • Furniture and household goods that are essential
  • Appliances for the home
  • Jewelry up to a certain price


  • A portion of the equity in the home of the debtor
  • Tools that the debtor uses in his trade or profession up to a specified value
  • Unpaid, but earned, a portion

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In a bank account, you can accumulate public benefits such as welfare, social security and unemployment compensation. Personal injury damages.

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