Bankruptcy Questions and Answers - Assets and Exemptions

What is an "Exemption"? 

Certain property is protected from creditors in bankruptcy. This property is known as exempt property.

What property is exempt?

Exactly what property is protected depends on the exemption scheme chosen. California has two schedules of exempt property.

Determining what property is exempt requires a complete understanding of the laws governing residency and the California exemption laws.

What happens to my personal property, real property and other assets?

All of the property you own at the time of the filing bankruptcy, and your right to receive property in the future, become the property of the bankruptcy estate. This means that the bankruptcy trustee may take control of this property and liquidate it to satisfy your creditors.

Certain property is exempt and you will be able to keep that property. California has two schedules of exempt property. The set of exemptions you should use depends on the nature and value of your property.

Often, all of your assets can be protected.

Can I keep my home and automobile?

In many cases you can retain your home and automobile in a Chapter 7 bankruptcy proceeding. You will keep your home or automobile in a Chapter 7 if (1) you are current in making payments on a loan secured by the home or automobile; and (2) the home or automobile does not have equity (a liquidation value in excess of the amount owed to creditors with liens against the property) in excess of what you are allowed to exempt. In the event you want to keep your home or automobile, you must continue to make payments after your petition is filed and you may be required to reaffirm the secured debt.

If you are in arrears on your home home or automobile, you can consider filing a Chapter 13 petition, which allows you to develop a plan for repaying your creditors without necessarily liquidating assets.

Are pension plans and 401(k) plans exempt?

The United States Supreme Court has held that pension plans, 401(k) plans, and other "ERISA-qualified plans" are generally "excluded" from the bankruptcy estate.

Are IRA accounts exempt?

Unlike 401(k) plans, IRA accounts are not ERISA-qualified plans and are only exempt to the extent necessary for the support of the debtor and their dependents.