What Does It Mean To Have a Non-Exempt Asset in Chapter 7?
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When you file Chapter 7 bankruptcy, any property you own that isn't fully protected by an exemption is considered a non-exempt asset. If an item has non-exempt equity — meaning its value exceeds the exemption limit — the trustee may be able to sell it to repay your creditors. Most people don't lose anything because their property is fully protected, but if you do have non-exempt equity, you may have options to keep the item. These include negotiating with the trustee, converting to Chapter 13, or disputing the trustee’s valuation.
Written by Curtis Lee, JD. Legally reviewed by Jonathan Petts
Updated December 18, 2025
What Is a Non-Exempt Asset in Bankruptcy?
A non-exempt asset is any property you own that isn’t fully protected by a bankruptcy exemption. If an asset isn’t protected — or if your exemption only covers part of its value — the bankruptcy trustee may be able to take it, sell it, and use the money to repay your creditors.
💡 In bankruptcy, an asset is anything you own that has value — like money, property, or personal belongings. All your assets are listed on Schedule A/B: Property, which is one of the required bankruptcy forms.
Most Chapter 7 cases are “no-asset cases,” which means all the filer’s property — and the equity they have in it — is protected by exemptions. But if you own property that’s not fully protected by exemptions, the trustee can liquidate or sell it to pay back your creditors. This often comes down to how much non-exempt equity you have in the item — which we’ll explain next.
What Does Non-Exempt Equity Mean?
Non-exempt equity is the part of an asset’s value that isn’t protected by a bankruptcy exemption. When you file Chapter 7, you can use exemptions to protect some or all of the value (called equity) you have in things like your home, car, or personal property. But if the exemption doesn’t cover the full value, the remaining amount is considered non-exempt.
For example, if your car is worth $10,000 and you still owe $7,000 on your car loan, your equity is $3,000. If your state’s car exemption only protects $2,000, then you have $1,000 in non-exempt equity.
The bankruptcy trustee could decide to sell the car, give you the $2,000 you're allowed to keep, pay off the loan, and use what’s left to pay your creditors. Whether that happens depends on the amount of non-exempt equity and whether it makes financial sense for the trustee to move forward with the sale.
What Are Bankruptcy Exemptions & Which Set Do You Use?
Generally speaking, bankruptcy exemptions determine what property you can keep when you file bankruptcy. Every state has its own set of bankruptcy exemptions, and there is also a set of federal exemptions. In some states, you can choose between the state and federal exemptions, and in others you must use the state’s exemptions.
In most Chapter 7 cases, exemptions cover all the filer's property.
How Does Equity Work With Secured Debts?
Just because you own something valuable doesn’t always mean the bankruptcy trustee can take it, especially if there’s a secured loan attached to it.
A secured debt is a loan that’s tied to a specific piece of property, like a car loan or mortgage. If you don’t pay the loan, the lender (called a secured creditor) has the right to take the property back — no matter what happens in your bankruptcy. That’s because the loan is backed by the property itself.
Even if you don’t have any equity — meaning the property is worth the same or less than what you owe — the lender still has a legal claim to it. In that case, the trustee usually won’t sell the property because there’s nothing left over to go to your creditors.
What Can a Bankruptcy Trustee Do if There’s Non-Exempt Equity?
If the trustee sees that one of your assets has non-exempt equity, they have the legal right to take and sell that item to help repay your creditors. But in practice, they usually won’t do this unless there’s enough non-exempt equity to make it worth the time and cost of selling it.
For example, if the amount of non-exempt equity is small, the trustee may decide it’s not worth pursuing. But if the property has significant non-exempt equity, the trustee is likely required to sell it. They’ll use the money from the sale to:
Pay off any loans tied to the property (if there are any),
Give you the amount you’re entitled to under your exemption,
Use the rest to pay your unsecured creditors.
If you think you own something with a lot of non-exempt equity, Upsolve usually isn't a good fit. You may want to consider speaking with a bankruptcy attorney. Most provide free consultations. In some cases, Chapter 13 might be a better option for protecting your property while dealing with your debt.
How To Protect Non-Exempt Equity
If you have property with non-exempt equity, the trustee might want to sell it. But they’ll usually notify you (or your attorney) before moving forward, giving you time to decide how to handle the situation.
You typically have a few options:
Let the trustee sell the property. If you don’t mind giving up the item, the trustee can sell it, pay you your exempt portion, and use the rest to pay your creditors.
Buy the non-exempt equity from the trustee. If you want to keep the property, you can offer to pay the trustee the value of the non-exempt equity. Most trustees will accept a reasonable offer, even if it’s a little less than the full amount, because it saves them the time and cost of selling the property themselves.
Convert to Chapter 13 bankruptcy. In Chapter 13, the trustee doesn’t sell your property. Instead, you repay your creditors over time through a repayment plan, which includes covering the value of any non-exempt assets you’re keeping.
Disagree with the trustee’s valuation. If you believe the trustee is wrong and your property doesn’t actually have any non-exempt equity, you can file a motion asking the court to abandon the property. If the court agrees that there’s no value for creditors, the property is removed from the bankruptcy estate and can’t be sold.
These options can be complex, especially if you're trying to protect something important to you. If you’re unsure how to move forward, consider setting up a free consultation with a bankruptcy attorney to talk through your options.
Let’s Summarize…
When you decide to file bankruptcy, you should take a moment to determine whether you have non-exempt equity in any of the property you own. Having non-exempt equity may influence whether you decide to file Chapter 7 or Chapter 13 bankruptcy. In Chapter 7, the trustee can sell items with a lot of non-equity for the benefit of your creditors. If you decide to file Chapter 13 instead, you can pay for the item as part of the Chapter 13 repayment plan.
