What property can you keep during and after a bankruptcy?

Property that is exempt is protected from creditors under either federal bankruptcy law or the laws of the state where the person lives. In Wisconsin, people can choose between federal exemptions and state exemptions.

Some types of property are completely protected, regardless of their value. These include:

• Prescribed health aids
• Government benefits, like Social Security (as long as the funds are kept separate from other money)

Other types of property are only protected up to a certain dollar amount. The exemption protects the equity you have in the property. Equity is the difference between the property's value and what you still owe on it. For example, if your car is worth $5,000 and you owe $4,500 on it, your equity in the car is $500.

In a Chapter 7 bankruptcy, if your equity is higher than the exemption limit, the bankruptcy trustee might sell the property (liquidate it). If that happens, you’ll get a cash payment equal to the exemption amount. The rest of the money is distributed to your creditors. In a Chapter 13 bankruptcy, the trustee doesn’t sell property. But your creditors have a right to an amount equal to your nonexempt equity. This amount is added to your payment plan.

If your property is secured by a loan (like a car or home), and (1) you’re current on payments, and (2) your equity in the property is fully covered by your exemptions, then you can usually keep the property by continuing to make loan payments.

If you’re behind on your mortgage payments when you file for Chapter 7 bankruptcy, you’ll likely lose your home even if your equity in the home is fully protected by the exemption. Why? Because Chapter 7 doesn’t get rid of mortgage liens. If you don’t pay what you owe, the lender can ask the bankruptcy court to lift the automatic stay and allow the lender to foreclose on your home, or the lender can simply wait to foreclose until after your Chapter 7 bankruptcy is over.

Non-Exempt Property

In a Chapter 7 bankruptcy, you lose property not protected by an exemption. The bankruptcy trustee responsible for managing your case will sell the property to pay your creditors. In a Chapter 13 bankruptcy, if you want to keep property that isn’t exempt, you usually must pay the trustee the value of the non-exempt property.

Married Couples

If you’re filing jointly with your spouse, each of you can claim a full set of exemptions.

Timing

You must live in a state for at least two years to use the state exemptions.

Federal vs. Wisconsin exemptions

Below is a chart comparing major provisions of the federal and Wisconsin exemptions.

If the exemption below doesn't include a dollar amount, you can keep the entire asset regardless of its value.