Federal Bankruptcy Exemptions Explained

What Are Bankruptcy Exemptions?

Bankruptcy exemptions are laws that help protect your property when you file for Chapter 7 bankruptcy. In simple terms, exemptions keep certain things — like your car, clothes, or part of your home equity — from being sold to pay your debts.

You claim bankruptcy exemptions on Schedule C, which is one of the forms in your bankruptcy petition.

👉 If you’re using Upsolve’s free filing tool to generate your bankruptcy forms, it’ll automatically walk you through the exemptions form.  If you want personalized guidance, Upsolve can connect you with a local bankruptcy lawyer for a free consultation on your case.

Most People Don’t Lose Anything in Chapter 7

A lot of people worry that filing Chapter 7 means giving up everything they own. But in most cases, that’s not what happens. 

The truth is, most Chapter 7 filers get to keep all their property. That’s because most cases are “no-asset cases,” which means the bankruptcy trustee doesn’t sell any of the filer’s property because everything is protected by exemptions.

Even if something you own is worth a little more than the exemption allows, many trustees won’t bother selling it unless it would clearly bring in money for your unsecured creditors. That’s why most people who file Chapter 7 get a fresh start, erase their debts, and keep all their essential belongings.

That said, if you do own property that isn’t covered by an exemption (nonexempt property), it’s important to know that the bankruptcy trustee overseeing your case has the right to sell it as part of the Chapter 7 bankruptcy process. 

What To Know About Bankruptcy Exemption Dollar Limits

Many bankruptcy exemptions have a dollar limit. That means you can only protect your property up to a certain dollar amount. If what you own is worth less than the limit, it's fully protected. If it's worth more, the bankruptcy trustee may be able to sell it and use the extra value to pay your creditors.

These limits aren’t random — they’re set by law and updated every three years to keep up with inflation. 

The most recent update took effect on April 1, 2025. Many important exemption amounts were increased as part of this update. 

Federal Bankruptcy Exemption Amounts

Here's a quick look at the most common federal bankruptcy exemptions and how much each one protects, based on the 2025 update.

💡 If you're a married couple filing jointly, you can typically double these exemption amounts — as long as both spouses have an ownership interest in the property.

Do All Bankruptcy Exemptions Have Dollar Limits?

Not all exemptions are capped. Some protect 100% of certain types of property, no matter how much it’s worth. For example, if you have a qualifying retirement account or receive Social Security benefits, those assets are typically protected in full — as long as they meet the legal requirements.

The Most Common Federal Bankruptcy Exemptions Explained

Let's look closer at the most common federal bankruptcy exemptions.

Federal Homestead Exemption

The federal bankruptcy exemptions include a homestead exemption that protects equity in a home you own and live in. 

As of April 1, 2025, you can protect up to $31,575 of home equity.

If your mortgage is higher than your home's value, you may not have any equity to protect. But don’t worry — you won’t lose your home just because you have a mortgage. Exemptions only apply to the equity portion (the part you own).

Source: 11 U.S.C. § 522(d)(1)

Not Using the Homestead Exemption? No Problem! 

If you don’t own real estate or don’t have any equity to protect, the federal system gives you an extra wildcard exemption. 

As of 2025, you can use up to $15,800 of the unused homestead exemption amount as part of your wildcard. That’s in addition to the base wildcard amount of $1,675.

This extra flexibility can help you protect cash, bank balances, or personal property that doesn’t fit neatly into other exemption categories.

Source: 11 U.S.C. § 522(d)(5)

The Wildcard Exemption

Wildcard exemptions are a catch-all category of exemptions that allow you to apply all or a portion of the exemption to an item that belongs in another category or doesn't have a category at all. 

For example, if you have a vehicle worth $5,000 you can only exempt $4,450 of its value using the federal exemption for motor vehicles. However, you could exempt the remaining $550 of its value using part of the federal wildcard exemption. 

Personal Property Exemptions

If you don’t own real estate, these exemptions are probably where you’ll focus most. Here’s what you can currently protect under the federal bankruptcy exemptions (as of April 1, 2025):

• Motor vehicle (your car): Up to $5,025

• Household goods: Up to $16,850 total, limited to $800 per item

• Jewelry: Up to $2,125

• Tools of the trade: Up to $3,175 (includes books, tools, or equipment used for work)

• Prescribed health aids: Fully protected, with no dollar limit

Reminder: If you're married and filing jointly, you can usually double these amounts, as long as both spouses have an ownership interest in the property.

Sources: 11 U.S.C. § 522(d)(2)–(6)

Exemptions for Money Accounts, Insurance, Compensation, and Other Benefits

Bankruptcy exemptions don’t just protect physical things like your car or furniture. They also protect:

💰Financial assets — like retirement accounts and insurance

⚖️Money you’re legally entitled to — like a personal injury settlement 

     or Social Security benefits.

These types of property are just as important and are often fully protected under federal exemption laws.

Here are some of the key protections under the federal bankruptcy exemptions:

• IRAs and Roth IRAs: Protected up to $1,711,975

• Social Security, VA benefits, public assistance, unemployment, alimony, and child support: Fully protected

• Life insurance (loan value, dividends, interest): Protected up to $16,850

• Unmatured life insurance policies (excluding credit life insurance): Fully protected

• Life insurance payments received as a dependent of the deceased: Fully protected

• Personal injury recovery: Protected up to $31,575 (not including pain and suffering or financial loss)

• Wrongful death recovery (if you were a dependent of the deceased): Fully protected

• Loss of future earnings compensation: Fully protected

• Crime victims' compensation: Fully protected

• Disability and illness benefits: Fully protected

Sources: 11 U.S.C. § 522(d)(8), (11)(D), and § 522(n)

Federal vs. State Bankruptcy Exemptions

There are two main types of bankruptcy exemptions: federal and state.

The federal exemptions are listed in federal bankruptcy law. States can also decide on their own exemptions. These are listed in state law.

Some states let people choose between using the federal exemptions or their own state exemptions. But other states have opted out of the federal system. If you live in one of these opt-out states, you’ll only be allowed to use the state exemptions.

‼️ You can’t mix and match between the two. If you pick the federal exemptions, you’ll have to use only those. The same goes if you use your state’s exemptions. You’ll have to choose one set or the other, depending on what your state allows.

What States Allow Residents To Use Federal Bankruptcy Exemptions?

Depending on what state you’ve been living in for at least two years when your case is filed, you’ll be able to use either that state’s exemptions or the federal bankruptcy exemptions, if the state hasn’t “opted out.” 

Currently, the following states allow their residents to use the federal bankruptcy exemptions:

• Alaska

• Arkansas

• Connecticut

• District of Columbia

• Hawaii

• Kentucky

• Massachusetts

• Michigan

• Minnesota

• New Hampshire

• New Jersey

• New Mexico

• New York

• Oregon

• Pennsylvania

• Rhode Island

• Texas

• Vermont

• Washington

• Wisconsin

Keep in mind that some states have more generous exemption amounts than those available under federal law. 

Depending on what types of property you have,  you can choose to use your state’s bankruptcy exemptions (plus any available federal non-bankruptcy exemptions) even though your state allows the use of federal bankruptcy exemptions. 

Let’s Summarize…

Federal bankruptcy exemptions are built into the U.S. Bankruptcy Code and updated every three years. If your state allows it, you can choose to use the federal exemptions instead of your state’s. These exemptions are designed to protect the basic property you need — like your home, car, personal items, and certain income or benefits. They apply in both Chapter 7 and Chapter 13 bankruptcy cases.

For most people, the federal exemptions are more than enough to protect everything they own. That’s why so many Chapter 7 cases are no-asset cases — the trustee doesn’t sell anything because there’s nothing unprotected. Understanding how exemptions work can give you peace of mind and help you take your next steps with more confidence.