It’s a common fear, and one that prevents many individuals and small business owners from seeking relief when they need it most. The good news is that filing for bankruptcy doesn’t automatically mean giving up your house, vehicle, or retirement savings. In fact, in many cases, these assets can be protected. Our friends at Eric Lindh Foster Law, LLC discuss a concern that many people have when considering bankruptcy—whether they’ll lose everything in the process.
As a bankruptcy lawyer, we often help clients understand which assets they can keep by applying exemptions available under federal or state law. These exemptions are designed to allow people a fresh start without stripping them of the basic things they need to rebuild.
How Exemptions Work
Exemptions are legal protections that apply to certain categories of property. If an asset falls within an exemption limit, it typically cannot be taken by the bankruptcy trustee to pay creditors. The purpose is to allow individuals to maintain a minimum standard of living during and after the bankruptcy process.
The rules around exemptions vary depending on whether you file under Chapter 7 or Chapter 13, and whether your state allows the use of federal exemptions or requires you to use state-specific ones. Either way, most people filing for bankruptcy are able to keep the assets that are most important to daily life.
Keeping Your Home
Whether you can keep your home depends on several factors, including its value, the amount of equity you have, and which exemption laws apply. Many states offer a homestead exemption that protects a certain amount of home equity. If the equity in your home is fully covered by the exemption, you’ll usually be able to keep it.
If you’re behind on mortgage payments and filing under Chapter 7, you may need to catch up to avoid foreclosure. Under Chapter 13, you can typically include those payments in a repayment plan over time, which may give you a better chance at keeping the property.
Protecting Your Vehicle
Most states provide a motor vehicle exemption that allows you to keep a car up to a certain value. If you owe money on the car and the loan balance is higher than the car’s market value, there may be no equity for creditors to claim. In Chapter 13, you may also be able to catch up on missed payments over time, which is useful if you need the vehicle for work or family obligations.
Even if your car’s value exceeds the exemption limit, there are ways to manage the situation, including buying back the non-exempt portion or negotiating alternative solutions through the bankruptcy process.
Retirement Accounts Are Usually Safe
In general, most tax-advantaged retirement accounts are fully protected in bankruptcy. This includes 401(k)s, IRAs, and pensions, up to certain limits that are rarely exceeded. These funds are considered essential for your long-term stability, and courts typically do not allow them to be used to pay unsecured creditors.
That said, withdrawing money from a retirement account before filing can cause problems. If those funds are moved into a standard account, they may lose their protected status. We always recommend reviewing any planned financial moves before filing to avoid unintentionally putting assets at risk.
The idea that bankruptcy means starting over with nothing is not accurate. With the right information and proper planning, most individuals and small business owners can protect what matters most. The goal of bankruptcy is to give people a path forward, not to leave them without the tools to rebuild. By understanding which protections apply and how the process works, we can help clients move forward with more confidence and less fear.