Posted on January 6th, 2026 

 

Filing for bankruptcy often comes with one overwhelming fear: losing everything you’ve worked hard to build. In reality, bankruptcy law is designed to protect people, not strip them bare. Exemption rules exist so individuals and families can maintain stability while addressing debt. The key is knowing how those protections apply to your situation and how Chapter 7 and Chapter 13 differ when it comes to keeping your property. 

 

 

Bankruptcy Exemptions And Why They Matter 

Bankruptcy exemptions determine which assets are protected when you file. These rules differentiate between property that can be liquidated to pay your creditors and property you’re allowed to keep. The purpose is practical: people need housing, transportation, clothing, and basic tools to move forward after filing. 

Exemptions apply to both real and personal property, including residential real estate, vehicles, household items, retirement funds, and personal belongings, and the amount of protection varies by category. In California, there are two sets of available exemptions which have a lot of similarity, yet have some major differences. One set or the other must be chosen.. 

Exemptions don’t remove debt. They simply allow you to shield certain assets from liquidation or forced sale during and after bankruptcy. When exemptions are applied correctly, most filers keep all or most of what they own. 

 

Chapter 7 Bankruptcy And Property Protection 

Chapter 7 Bankruptcy is often called “liquidation bankruptcy,” but that label causes unnecessary alarm. In most consumer cases, properly claimed exemptions prevent liquidation altogether. The process focuses on clearing unsecured debt, not on taking essential property. 

In Chapter 7, a trustee reviews your assets. Anything not covered by an exemption may be sold to pay creditors. Assets that fall within exemption limits remain yours. For many filers, exemptions cover their entire estate. 

Other items typically protected under personal property exemption rules include:  

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Household goods and furnishings, clothing, and personal electronics  

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Personal jewelry within set value limits  

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Tools or equipment used for work within set value limits  

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Retirement accounts and cash value in life insurance policies

Most Chapter 7 cases move quickly. Most filers receive a discharge within a few months while keeping all or most of their property. 

 

Chapter 13 Bankruptcy And Asset Retention 

Chapter 13 Bankruptcy works differently. Instead of liquidating assets, it creates a court-approved repayment plan that lasts three to five years. One major benefit of Chapter 13 is asset retention. Filers typically keep all property, including assets that might exceed exemption limits in Chapter 7. Chapter 13 is often used by people who want to keep a home with higher equity, catch up on mortgage arrears, protect non-exempt assets, or pay nondischargeable debts, such as tax liabilities. Plan payments are structured based on income, allowable expenses, and asset value. 

Property exemptions still matter in Chapter 13. They influence how much you must pay unsecured creditors through the plan. If you have non-exempt equity, the payment plan must account for that value. Exemptions reduce payment pressure. This structure makes Chapter 13 attractive for people asking, “Can I keep my house in bankruptcy?” or “Can I keep my car in bankruptcy?” In many cases, Chapter 13 offers tools Chapter 7 cannot, especially when behind on secured debts. 

 

What Property Can I Keep In Bankruptcy? 

One of the most common questions is simple but important: what property can I keep in bankruptcy? The answer depends on exemption rules and the chapter filed, but many everyday items are protected. 

In most cases, filers keep:  

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Their primary residence within exemption limits  

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One or more vehicles up to allowed equity limits

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Household goods, clothing, and personal items  

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Retirement accounts like 401(k)s and IRAs  

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Public benefits and certain insurance proceeds  

These protections exist because bankruptcy law recognizes basic needs. Losing everything would defeat the purpose of financial recovery and a Fresh Start. Issues arise when assets have high equity or fall outside standard exemption categories. Examples include second homes, luxury vehicles, collectibles, investment accounts, and large cash holdings. These situations require careful planning before bankruptcy filing. 

 

Related: The Most Common Bankruptcy Mistakes People Make in December 

 

Conclusion 

Bankruptcy doesn’t mean starting over with nothing. Exemption laws exist to protect homes, vehicles, and daily necessities while debt is addressed through Chapter 7 or Chapter 13. By applying bankruptcy exemptions correctly, most people keep what matters most and gain a clearer path forward without constant financial strain. 

At the Law Offices of R. Kenneth Bauer, we focus on protecting your property while guiding you through the bankruptcy process with clarity and care. Your property can stay where it belongs—home, car, or essentials—while we help you move toward relief with confidence. Reach out today at (925) 818-5555 to discuss your options and take the next step toward financial stability with informed support.

Disclaimer: This content is provided for general informational purposes only and does not constitute legal advice. The applicability of bankruptcy and related laws varies based on individual circumstances, and the information here may not apply to your specific situation. You should not rely on this content as a substitute for legal counsel. To understand your rights and options, consult with a qualified bankruptcy attorney.