Chapter 7 Personal Bankruptcy: Chapter 7 Basics & Exempt Property List

  1. This article will cover the basics of Chapter 7 of Consumer Bankruptcy law, helping you understand how it works, what debts are extinguished in consumer bankruptcy proceedings and what assets are exempt from being seized.

    Understanding Bankruptcy

    Bankruptcy law helps a debtor survive financially by working with creditors to keep certain necessary assets and dispose of the remaining assets under the supervision of the bankruptcy court. This proceeding provides for the equal treatment of both parties, allowing for a debtor to have some personal property in the expectation that he may begin life again with a new possibility for survival.

    Bankruptcy proceedings are held in the United State Bankruptcy Courts, which are a part of the District Courts in the United States (these are federal courts, not state courts.) Federal law provides for the appointment of United States Trustees who are responsible to supervise and administrate bankruptcy trials. Congress established the Bankruptcy Rules which govern the bankruptcy courts. As bankruptcy law is a federal law, the state does not play a part in bankruptcy proceedings in federal court but they can regulate aspects of the debtor-creditor relationship.

    Consumer bankruptcy proceedings are filed under Chapter 7 of Title 11 of the United States Code.

    Chapter 7 - Personal Bankruptcy

    Chapter 7 bankruptcy is also known as “liquidation.” When one files for a Chapter 7 bankruptcy they will be required to turn over all of their assets to a court appointed trustee. The trustee will then sell off the assets and distribute the proceeds to creditors named in the bankruptcy proceedings. Chapter 7 is the most common type of bankruptcy proceeding and this bankruptcy will relieve the debtor of all debt and will completely liquidate assets required to be made available. Some assets are exempt from being sold under Chapter 7 are items such as your home, one vehicle, a pension fund or an IRA. No luxury items are exempted like a boat, antiques or other personal valuables.

    Exempt Property

    • Motor vehicles (below a set value)
    • Reasonable and necessary clothing.
    • Reasonable and necessary household goods and furnishings
    • Basic household appliances
    • Some jewelry (below a set value)
    • Pensions and IRAs (retirement accounts)
    • Damages awarded for personal injury
    • Professional tools (of debtor’s job) below a set value
    • An equity portion of debtor in debtor’s home
    • Part of wages earned by debtor but unpaid
    • Public benefits such as welfare, public assistance, social security, unemployment compensation (including amounts collected and stored in debtor’s bank account)

    Non-exempt Property

    • Some musical instruments (exceptions if the debtor is a professional musician)
    • Collections of coins, stamps, coins, collectible cards, other valuable items
    • Family heirlooms
    • Cash, bank accounts, stocks, bonds, other investments
    • Second vehicle
    • Second home or vacation home
    Bankruptcy is a complicated matter and it is important to receive good legal advice before filing. Debt refinancing can present an excellent alternative to a filing for bankruptcy, which should usually be used as a means of last resort.
    Bankruptcy & Debt:
    Bankruptcy - Basics

    Michael Wechsler

    Michael Wechsler
    Michael M. Wechsler is an experienced attorney, founder of, A. Research Scholar at Columbia Business School and of-counsel to Kaplan, Williams & Graffeo, LLC. He was also an SVP and chief Internet strategist at and legal consultant at Kroll Ontrack, a leading service e-discovery and computer forensics service provider.


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