Which Assets Are Protected in Bankruptcy? State Guide

How Bankruptcy Exemptions Work

When you file for bankruptcy, your assets become part of the bankruptcy estate — but not all of them. Federal law and state law both guarantee that certain categories of assets are exempt from creditor claims. These exemptions exist because public policy recognises that stripping people of every possession does not serve the goal of financial rehabilitation. You are meant to emerge from bankruptcy with enough to rebuild.

The specific exemptions available to you depend on which state you live in and, in about 18 states, whether you choose federal exemptions or your state's exemptions. The differences are significant. Texas and Florida have unlimited homestead exemptions — you can keep a million-dollar home in bankruptcy. Other states cap homestead protection at $25,000–$40,000, meaning that a homeowner with significant equity may lose their home in Chapter 7 unless they choose Chapter 13 instead.

Retirement accounts are the most uniformly protected asset class. ERISA-qualified accounts (401k, 403b, pension plans) have unlimited federal protection in all states. Traditional and Roth IRAs are protected up to approximately $1.5 million under federal law. This is one of the most powerful protections in the bankruptcy code — and one of the strongest reasons not to liquidate retirement accounts to pay debt before exploring bankruptcy.

Understanding your exemptions before filing allows you to make strategic decisions: which chapter to file, whether to pay down a mortgage to increase protected equity, whether to convert non-exempt cash to exempt assets (within legal limits), and how to sequence any asset sales to minimise what creditors can reach.

Calculate Your Protected Assets

Enter your assets and select your state to see exactly which assets are protected, how much non-exempt value a Chapter 7 trustee could reach, and whether Chapter 7 or Chapter 13 makes more financial sense.

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5 Steps to Understanding Your Asset Protection Before Filing

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Step 1: Identify your state's exemption system
Start by determining whether your state allows a choice between federal and state exemptions. About 18 states allow this choice — including Arkansas, Connecticut, Hawaii, Michigan, Minnesota, New Jersey, New Mexico, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin. In states that allow a choice, compare both systems and select the more favorable one. You cannot mix and match individual exemptions from both systems — you must choose one complete set.
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Step 2: Determine your homestead exemption
The homestead exemption protects equity in your primary residence. Texas and Florida offer unlimited protection. Arizona protects up to $400,000. California protects up to $704,172 (periodically adjusted). Many other states protect $25,000–$75,000. If your home equity exceeds the exemption limit, a Chapter 7 trustee can force a sale to capture the non-exempt equity. Chapter 13 avoids this entirely — you keep all assets, including non-exempt equity, by repaying its value over 3–5 years.
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Step 3: Account for retirement accounts separately
Do this before anything else: ERISA-qualified accounts (401k, 403b, pension plans) are protected from bankruptcy trustees regardless of your state. Traditional and Roth IRAs are protected up to approximately $1.5 million under federal law. This means in most cases, your retirement savings are completely safe. Never liquidate a retirement account to pay unsecured debt if bankruptcy is a possibility — the tax penalties and loss of protection produce a dramatically worse outcome.
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Step 4: Calculate vehicle, personal property, and wildcard exemptions
Most states protect a vehicle up to a specific dollar limit (ranging from $1,000 to $15,000 depending on state). Personal property exemptions cover household goods, clothing, tools of trade, and similar items — typically $5,000–$15,000. Many states also offer a 'wildcard' exemption that can be applied to any asset, including cash or equity above other exemption limits. The federal wildcard of $1,325 (plus unused homestead exemption) is often valuable in states with low homestead protection.
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Step 5: Compare Chapter 7 vs. Chapter 13 based on non-exempt exposure
Chapter 7 requires liquidation of non-exempt assets — the trustee sells them and distributes proceeds to creditors. Chapter 13 allows you to keep all assets (including non-exempt ones) in exchange for a 3–5 year repayment plan that pays unsecured creditors at least the value of non-exempt assets ('best interests of creditors' test). If your non-exempt exposure is modest relative to your debt, Chapter 7 may be appropriate. If you have significant non-exempt home equity, a car above the exemption limit, or a business with real value, Chapter 13 often produces a better outcome.

The Most Important Exemptions in Each State Category

The states with the most debtor-friendly exemptions are Texas, Florida, Nevada, and Minnesota. Texas protects an unlimited homestead, an unlimited retirement account, and personal property up to $50,000 ($100,000 for families) — making it one of the best states in the country for debtors with significant assets. Florida's unlimited homestead exemption has made it a destination for asset protection planning, though personal property protections are modest outside the homestead.

States with more limited protections include Pennsylvania (no homestead exemption at all in bankruptcy), Illinois ($15,000 homestead), and Missouri ($15,000 homestead). In these states, homeowners with equity above the cap face a real risk of losing their home in Chapter 7 and must carefully evaluate Chapter 13 as an alternative.

Regardless of state, the practical floor for asset protection is the federal exemption system. Federal exemptions include a $27,900 homestead exemption, $4,450 vehicle, $700 per household item (up to $14,875 total), $1,875 jewelry, and a $1,475 wildcard that can be applied to any property. In states with particularly low homestead exemptions, the federal system is often better.

Frequently Asked Questions

Can I keep my car in bankruptcy?

Usually yes — up to your state's vehicle exemption limit. If your vehicle equity (value minus loan balance) is below the exemption, you keep the car. If it exceeds the exemption, the trustee may sell it and pay you the exempt amount. In Chapter 13, you keep the car regardless and pay its non-exempt value to creditors over the plan period. If you are still making loan payments, you typically reaffirm the debt in Chapter 7 to keep the vehicle.

What happens to my 401(k) if I file bankruptcy?

Nothing — ERISA-qualified retirement accounts including 401(k), 403(b), and pension plans are completely protected from bankruptcy trustees under federal law, with no dollar limit. You keep the entire account. This is one of the strongest protections in the bankruptcy code and applies regardless of which state you are in.

What is the 'means test' and who can file Chapter 7?

The means test determines whether your income is low enough to qualify for Chapter 7. If your income is below your state's median income for your household size, you automatically qualify. If it is above, a second calculation applies that compares income to expenses — if disposable income exceeds a threshold, you are directed to Chapter 13 instead. The means test was introduced in 2005 to prevent high-income debtors from using Chapter 7.

Can bankruptcy protect me from wage garnishment?

Yes. Filing bankruptcy triggers an automatic stay — an immediate court order that stops most collection actions including wage garnishments, lawsuits, foreclosures, and repossessions. The automatic stay takes effect the moment you file, often within hours of submission. For someone facing imminent garnishment, bankruptcy can be filed quickly to stop the process.

How long does bankruptcy stay on my credit report?

A Chapter 7 bankruptcy stays on your credit report for 10 years from the filing date. A Chapter 13 bankruptcy stays for 7 years. However, the practical impact on your ability to get credit diminishes significantly after 2–3 years as other positive credit history accumulates. Most people can get a secured credit card immediately after discharge and rebuild their credit score meaningfully within 2–3 years.

See Exactly What's Protected in Your State

The Asset Protection Calculator applies your state's specific exemptions to your assets — home equity, vehicles, retirement accounts, brokerage, personal property — and shows exactly which assets are safe and which are at risk.