What Assets Can You Keep in Chapter 7 Bankruptcy?
Filing for bankruptcy is a stressful and overwhelming decision. Many individuals facing financial difficulties worry that filing for bankruptcy means they will lose everything. However, that isn't usually the case. Under Chapter 7 bankruptcy, you are allowed to retain certain essential assets under both federal and state exemption laws.
The Law Offices of Marc G. Alster is experienced in handling bankruptcy cases for clients throughout New Jersey. Attorney Alster can help you understand these exemptions and how they apply, thereby empowering you with the knowledge you need to make informed choices about pursuing bankruptcy as a solution for debt relief.
Understanding Exemptions in Chapter 7 Bankruptcy
Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” involves the sale of nonexempt assets to pay off creditors. However, this process is designed to give individuals a fresh financial start, not to leave them destitute.
To ensure this, both federal and state laws provide exemptions for certain categories of assets, which allow you to retain certain essential property to maintain a reasonable standard of living and rebuild after bankruptcy.
Exemptions can vary significantly from State to State depending on whether you choose to use federal or state laws. A qualified bankruptcy attorney can help you determine which set of exemptions can and should be applied to your case, and guide you through the process effectively.
Categories of Exempt Assets
NEW JERSEY's exemptions are very stingy compared to the Federal exemptions. Therefore in New Jersey almost every debtor represented by competent counsel will choose to protect their assets with the Federal exemptions in order to keep them exempt/protected from an otherwise aggressive Chapter 7 Trustee who might otherwise use the bankruptcy proceedings to sell any asset having significant value over and above the amount of the exemption. Following are some common exemptions used by many New Jersey debtors to protect their assets during Chapter 7 bankruptcy proceedings.
The Homestead Exemption
The homestead exemption is designed to protect equity in a debtor's primary residence. If the equity in your home (the fair market value minus all outstanding mortgage and all other lien balances) falls within the allowable exemption limits, you will be able to keep your home. Federal law provides a homestead exemption of up to 31,005 and $63,150 to spouses who co-own their residence (as of June 2025 ).
New Jersey does not currently offer its own homestead exemption, so debtors New Jersey who own their own home invariably opt to rely on the federal exemption.
This exemption often works for filers with modest equity in their home. If the equity exceeds the allowable exemption, the bankruptcy Trustee may consider selling the home to pay off creditors. There are certain legal strategies that may allow debtors to keep their home including, but not limited to, filing for Chapter 13 protection if qualified. See other article in this website under the Bankruptcy Specific section entitled "And Overview of Ch 13 Bankruptcy".
Vehicle Exemption
If you like most people rely on your vehicle for commuting to work, running errands, or other essential tasks, you are probably going to need/want to retain it. Federal bankruptcy exemptions allow you to protect up to $5025 of equity in all/any motor vehicles you own. Similar to the homestead exemption, New Jersey does not currently have a specified vehicle exemption amount, so here again you would have to use the Federal exemption to protect the equity you have in your car from being lost in a forced sale by an aggressive Ch Bankruptcy Trustee.
It's also important to note that keeping your car will likely require staying current on your car loan payments if the vehicle is financed.
Personal Property
Personal belongings, such as clothing, household goods, furniture, and certain appliances, are often exempt from liquidation in Chapter 7 bankruptcy. Federal exemptions allow you to keep a total of up to $16,850.00 in equity in the worth of household goods (with a limit of $800.00 per item). This ensures that you can maintain the basic items required for daily living, as long as they are not extravagant.
The value of personal property, such as wedding rings or other jewelry, can also be protected, though the use of the Federal exemption for jewelry, which is capped at $2,125.00 per debtor.
Retirement Accounts and Pensions
For many individuals, retirement savings are among their most valuable assets. Fortunately, most retirement accounts, such as 401(k)s, IRAs, and pensions, are fully protected under the Federal exemptions, this includes individual and employer-sponsored retirement plans as well.
These exemptions are in place to make sure you can maintain a source of income after leaving the workforce, even if you experience financial hardship earlier in life.
Wages and Income
If you’ve earned wages before filing for bankruptcy but have not yet received payment, some or all of these wages will be exempt. The federal exemption protects a portion of wages necessary to support you and your family. Additionally, ongoing income earned after the bankruptcy filing date are not ordinarily subject to liquidation by the Ch. 7 Trustee, allowing you to sustain yourself during, and of course, after the bankruptcy process. See the other articles in this website in the Bankruptcy Overview Section entitled "Common Bankruptcy Myths" and in the Bankruptcy Specific section entitled "Protecting Debtors' Assets - The Ch 7 Trustee's Duties and Obligations".
Wildcard Exemption
The federal “wildcard” exemption offers individuals additional flexibility to protect assets that do not fall into the categories listed above. You can apply up to $1,675.00 wildcard exemption plus any unused portion of your homestead exemption (up to $15,800.00) to protect any property of your choice, such as cash in a checking account, family heirlooms, or other assets important to you (assuming you don't own a home or have little to no equity in your home - see the homestead exemption above and the "Bankruptcy Exemptions" article in the Bankruptcy Overview section of this website).
Factors That Influence What You Can Keep
While exemptions play a significant role in determining what assets you can keep, your individual circumstances will influence the outcome of your whether you have a smooth bankruptcy case, or have to contest the attempted sale of one or more of your assets by an aggressive Ch 7 Trustee, including the following.
State of residency: Exemptions vary based on your state, and some states require you to use their specific exemptions instead of federal ones.
Asset valuation: The valuation of your property, including your home and car, should be realistic and based on current market values and the specific condition of the asset being protected. Overestimating asset value can needlessly complicate your case.
Existing loans and liens: The payoff amounts for your secured debts, such as mortgages and car loans, will of course impact/determine how much equity you own and more specifically whether you will be able to retain certain assets without your case become contested.
Filing jointly or individually: Married couples filing jointly will usually benefit from doubling many exemptions. An experienced bankruptcy attorney, such as Mr. Alster can help you understand whether you any of your assets are in jeopardy of an attempted sale by an aggressive Ch 7 Trustee. see the homestead exemption above and the "Bankruptcy Exemptions" article in the Bankruptcy Overview section of this website
How an Attorney Can Help
Filing for Chapter 7 bankruptcy requires both a clear understanding of federal and New Jersey exemption laws and a strategic approach to protect your assets. That's why it's important to work with an experienced bankruptcy attorney like Marc G. Alster, who can provide the guidance and support you need.
The Law Office of Marc G. Alster serves clients throughout northern and central New Jersey, helping individuals find effective solutions to their financial challenges while preserving as much of their property as possible.
Mr. Alster and his firm are well-versed in bankruptcy law and is committed to helping clients move forward with clarity and confidence. If you’re unsure about your eligibility for exemptions or need assistance with the filing process, reach out to schedule a consultation today.
Contact an Experienced Bankruptcy Attorney Today
Filing for Chapter 7 bankruptcy doesn’t have to mean losing any of your assets. Federal and state exemption laws are designed to protect basic living necessities and help you get back on your feet. By understanding what assets you can keep and partnering with a knowledgeable bankruptcy attorney, you can achieve lasting debt relief while preserving your essential assets and, perhaps, most importantly, not losing sleep.
Located in Hackensack, New Jersey, The Law Offices of Marc G. Alster serves clients throughout northern and central New Jersey, including Bergen County, Passaic County, Hudson County, Essex County, and Union County, as well as Rockland County, Westchester County, Orange County, and Putnam County in New York. Call today to schedule a consultation. Balances and more specifically