Chapter 7 Bankruptcy Exemptions Guide (2026) - What You Can Keep

What Are Bankruptcy Exemptions?

When you file for Chapter 7 bankruptcy, a court-appointed trustee can sell your non-exempt assets to pay creditors. Bankruptcy exemptions are laws that protect certain property from being seized. Without exemptions, filing for bankruptcy could leave you with nothing. Every state has its own exemption scheme, and some states allow you to choose between federal and state exemptions.

The purpose of exemptions is to give honest debtors a fresh start while still providing some recovery for creditors. Understanding which exemptions apply to your situation is one of the most important steps in the bankruptcy process. Making the wrong choice about which exemption system to use could cost you thousands of dollars in protected assets.

Exemption amounts are adjusted periodically for inflation. The federal bankruptcy exemptions were significantly increased in April 2025, meaning more debtors can now protect their assets under the federal system. Always check the most current amounts before filing.

Federal Bankruptcy Exemptions (2026)

The federal bankruptcy exemption system provides uniform protection across all states that allow debtors to opt in. As of 2026, the homestead exemption protects up to $27,900 in equity in your primary residence. For married couples filing jointly, this amount doubles to $55,800.

The motor vehicle exemption protects up to $4,750 in equity in your car, truck, or other vehicle. If your car is worth more, you may be able to use a wildcard exemption to cover the difference. The federal wildcard exemption allows you to protect up to $1,575 plus up to $14,850 of any unused portion of the homestead exemption.

Personal property exemptions cover household goods and furnishings (up to $750 per item, $15,875 total), clothing ($1,875), jewelry ($1,875), and other personal items. These limits ensure you can maintain a basic standard of living after bankruptcy.

State-Specific Exemptions

Many states have their own exemption systems that differ significantly from the federal system. Some states, like Texas and Florida, offer unlimited homestead exemptions, meaning you can protect your entire home regardless of its value. Other states have very low exemptions that provide minimal protection.

States that require you to use their own exemptions include California, Texas, Florida, and many others. In some states, you can choose whichever system gives you the most protection. The key is to compare both systems and determine which protects more of your assets.

Some states also offer unique exemptions that do not exist in the federal system, such as protections for tools of your trade, public benefits, or wildcard exemptions that can be applied to any property.

Retirement Accounts Are Generally Protected

One of the strongest protections in bankruptcy law is for retirement accounts. Most tax-exempt retirement accounts, including 401(k) plans, 401(a) plans, 403(b) plans, and IRAs, are fully protected in bankruptcy under federal law. This protection was strengthened by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Traditional and Roth IRAs are protected up to a combined limit of approximately $1.5 million (adjusted for inflation). Most people retirement savings fall well below this cap, meaning their entire retirement nest egg is safe in bankruptcy. Employer-sponsored plans like 401(k) accounts have unlimited federal protection.

However, there are important caveats. Contributions made shortly before bankruptcy may be scrutinized. If you recently moved money from a non-exempt account into a retirement account, the trustee could challenge the exemption. Additionally, inherited IRAs are not protected under federal bankruptcy law.

Common Mistakes to Avoid

One of the biggest mistakes people make is transferring assets to family members before filing. This is called a fraudulent transfer and can result in your bankruptcy case being dismissed, or worse, charges of bankruptcy fraud. The trustee can look back up to two years for such transfers.

Another common mistake is paying off one creditor over another in the months before filing. This is called a preferential transfer, and the trustee can recover the money from the creditor who received it. Similarly, taking cash advances or running up credit card bills right before filing is considered bad faith.

Failing to properly list all assets on your bankruptcy schedules is another frequent error. If you forget to list an asset, the trustee could sell it even if it would have been exempt had you disclosed it. Always be thorough and honest in your bankruptcy filings.

When to Consult a Bankruptcy Attorney

While many people file Chapter 7 bankruptcy without an attorney, there are situations where professional help is invaluable. If you own a business, have significant assets, or face complex issues like tax debt or student loans, an experienced bankruptcy attorney can make a substantial difference.

An attorney can help you maximize your exemptions, navigate complex eligibility rules, and represent you at the 341 meeting of creditors. Many bankruptcy attorneys offer free consultations, so it is worth talking to one before making decisions about your case.

Additionally, if you have been sued by a debt collector or creditor, a debt validation letter can help you challenge the debt before resorting to bankruptcy. Our free tool generates a legally valid debt validation letter in minutes, giving you another option to consider.