Bankruptcy Exemptions

Bankruptcy exemptions determine what property you get to keep when you file for bankruptcy — and the rules vary dramatically depending on whether you use the federal exemption system or your state's system. In about half of U.S. states, you can choose between the two; in the other half, you must use state exemptions. The stakes are real: a state with a robust homestead exemption (Texas and Florida have unlimited homestead exemptions) lets you protect your house entirely, while filing in a state with a $25,000 homestead cap could mean losing equity above that amount to creditors. Retirement accounts — 401(k)s, pensions, and IRAs up to roughly $1.7 million — are generally protected under both federal and state systems, making them the asset most worth preserving before a filing.

Current Law (2026)

Bankruptcy exemptions determine what property a debtor can keep when filing for Chapter 7 bankruptcy. Exemptions vary dramatically between federal and state systems.

Legal Authority

• 11 U.S.C. § 522 — Exemptions (core statute governing what property debtors may keep)
• 11 U.S.C. § 522(b)(1)-(3) — Choice between federal and state exemption systems; 730-day domicile rule
• 11 U.S.C. § 522(d) — Federal exemption list with specific dollar amounts (homestead, motor vehicle, household goods, jewelry, wildcard, tools of trade, life insurance, health aids, Social Security, retirement accounts)
• 11 U.S.C. § 522(n) — IRA exemption cap (indexed for inflation, currently ~$1.7M)
• 11 U.S.C. § 522(p) — 1,215-day cap on homestead exemptions for recently acquired property (prevents pre-filing homestead stuffing)
• 11 U.S.C. § 522(q) — Homestead cap for felony convictions and certain securities violations
• 11 U.S.C. § 541 — Property of the estate (defines what enters the estate before exemptions apply)
• State exemption statutes — Vary by state; opt-out states require use of state exemptions only

How It Works

Bankruptcy exemptions determine what you get to keep when you file. Under 11 U.S.C. § 522, debtors in most states can choose between the federal exemption schedule and their state's exemptions — but some states have "opted out" of the federal scheme and require use of state exemptions only (California, Texas, Florida, and about 15 others). To use a given state's exemptions, you must have lived there for 730 consecutive days (2 years) before filing; if you moved within the past 2 years, you use the exemptions of your prior state of domicile. The homestead exemption — protecting your primary residence equity — is the most variable: the federal exemption is $31,575 (effective April 1, 2025 through March 31, 2028); Texas and Florida offer unlimited homestead protection covering any amount of home equity; New Jersey offers $0. This is why wealthy individuals in financial trouble have historically moved to Texas or Florida before filing — a practice BAPCPA partially addressed.

When you file bankruptcy, all your legal and equitable interests as of the filing date become the bankruptcy estate under 11 U.S.C. § 541 — real property, personal property, bank accounts, tax refunds, causes of action, and interests in trusts. Exemptions are then carved out of this estate; what remains goes to creditors. Retirement accounts receive the strongest federal protection: ERISA-qualified plans (401(k), 403(b), pension plans) are fully excluded from the bankruptcy estate with no dollar cap under § 522(b)(3)(C), following the Supreme Court's holding in Patterson v. Shumate. Traditional and Roth IRAs are protected up to approximately $1,711,975 in aggregate (inflation-adjusted, effective April 1, 2025), which covers the overwhelming majority of IRA holders. Rollovers between qualified plans maintain their protected status. The federal wildcard exemption can be applied to any property of the debtor's choosing, and the unused portion of the homestead exemption can be added to the wildcard — particularly useful for renters or debtors with no home equity who need to protect other assets.

One critical anti-abuse provision closes the "move to Florida and buy a mansion" strategy. Under § 522(p) — added by BAPCPA in 2005 — even in states with unlimited homestead exemptions, if the debtor acquired the homestead interest within 1,215 days (about 3.3 years) before filing, the exemption is capped at $214,000 (effective April 1, 2025; previously $189,050). This prevents last-minute conversion of non-exempt assets into home equity specifically to shield wealth from creditors. Debtors who have owned their homestead for more than 3.3 years before filing remain entitled to the full state exemption — the cap only applies to recently acquired homestead interests. Planning the timing of a bankruptcy filing around this threshold is a common and legally recognized consideration in pre-bankruptcy financial planning.

How It Affects You

State Variations

Implementing Regulations

Bankruptcy exemptions are governed by 11 U.S.C. § 522 and applicable state exemption laws. No CFR implementing regulations exist — exemption amounts are set by statute and adjusted periodically by the Judicial Conference.

Pending Legislation (119th Congress)

• S 1659 (Sen. Coons, D-DE) — Bankruptcy Administration Improvement Act of 2025. Doubles Chapter 7 trustee pay and changes how filing fees are split and calculated, while preserving fee waivers for indigent filers. Status: Passed Senate.
• S 3424 — Bankruptcy Administration Improvement Act of 2025. Raises Chapter 7 trustee pay to $120 per case and reallocates fee revenue to strengthen the U.S. Trustee system. Status: Became law.
• HR 4064 (Rep. Tenney, R-NY) — Protecting Gun Owners in Bankruptcy Act. Would let people in bankruptcy exempt up to $3,000 in firearms. Status: Introduced.
• HR 3867 (Rep. Cline, R-VA) — Bankruptcy Administration Improvement Act of 2025. Would raise Chapter 7 trustee pay to $105 per case, reshuffle bankruptcy fee allocations, and extend temporary bankruptcy judge terms. Status: Introduced.
• S 3977 — Bankruptcy Threshold Adjustment Act of 2026. Adjusts who can use Chapter 11 and Chapter 13 by raising the small-business cap to $7.5M and capping consumer filings at $2.75M. Status: Introduced.
• HR 7730 — Bankruptcy Threshold Adjustment Act of 2026 (House companion). Status: In committee.

Recent Developments

• Bankruptcy Administration Improvement Act (2025): S 3424 became law, raising Chapter 7 trustee compensation to $120 per case and reallocating filing fee revenue to strengthen the U.S. Trustee system. This was primarily an operational improvement rather than a change to exemption law, but it signals Congressional attention to the bankruptcy system.
• Exemption amounts adjusted (2025): Federal bankruptcy exemption amounts are adjusted every three years based on the CPI. The most recent adjustment (effective April 1, 2025 through March 31, 2028) raised the homestead exemption to $31,575, the motor vehicle exemption to $5,025, the wildcard to $1,675 + up to $15,800 of unused homestead, and the IRA exemption cap to $1,711,975. The § 522(p) 1,215-day homestead cap rose from $189,050 to $214,000.
• Bankruptcy threshold changes: The Bankruptcy Threshold Adjustment Act (S 3977 / HR 7730) would raise the Chapter 11 small-business debt cap to $7.5 million and cap Chapter 13 eligibility at $2.75 million in total debt. These changes would shift some high-debt individual filers between chapters, affecting which exemption strategies are available.
• Medical debt driving filings: Medical debt continues to be the leading or co-leading cause of personal bankruptcy filings. The interaction between expanding medical debt protections (credit reporting changes, CFPB rulemaking) and bankruptcy remains an active policy area — stronger credit reporting protections may reduce the urgency to file bankruptcy to escape medical collections. See Medical Debt Protections.