What are you allowed to keep when filing for bankruptcy?
When you're struggling under the weight of overwhelming debt, even basic financial decisions can feel tough to navigate. And, things can get even worse if that debt eventually becomes delinquent and slips into collections, where the potential repercussions are a lot heavier than the compounding interest and ballooning balances that you were dealing with. But with credit card debt surpassing $1.21 trillion nationally and delinquency rates climbing, more borrowers are finding themselves trapped in a cycle where they can no longer make payments on what they owe, and the collection calls become routine.
In these cases, filing for bankruptcy begins to look less like a worst-case scenario and more like a potential lifeline. However, the fear of being forced to sell everything in the process can keep people from seriously exploring this option. That concern is understandable, but it's also generally misplaced. The bankruptcy process wasn't designed to strip you of everything you own and leave you starting from nothing. Both federal and state laws allow you to keep the assets you genuinely need to maintain a home, get to work and rebuild your financial life.
And, while every situation is different, most people who file for bankruptcy are surprised to learn they can retain far more than they expected. So, what are you actually allowed to keep during the bankruptcy process?
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What are you allowed to keep when filing for bankruptcy?
The assets you can keep when filing for bankruptcy depend on exemption laws, which exist at both the federal and state levels. Some states let you choose between federal and state exemptions, while others require you to use only state protections. While these exemptions typically cover the same essential categories, the dollar amounts can vary significantly.
Homestead exemptions protect equity in your primary residence. Federal exemptions currently allow you to keep up to a certain amount in home equity (up to $31,575 for 2026), while some states like Florida and Texas offer unlimited homestead protection. If you don't own a home, many states will allow you to apply unused homestead exemption amounts to other property, giving you additional protection for vehicles or other assets.
Your vehicle typically receives some protection under federal exemptions, while state amounts range from a few thousand dollars to $15,000 or more. This recognizes that reliable transportation is essential for maintaining employment and meeting basic needs. If your car is worth more than the exemption but you're still making payments, the equity (which is what you own after subtracting the loan balance) is what counts toward the limit.
Retirement accounts receive particularly strong protection. Traditional IRAs and Roth IRAs are protected up to $1,711,975 under federal law, while 401(k)s, 403(b)s and pension plans typically enjoy unlimited protection under federal law regardless of which state you're in. This ensures that filing for bankruptcy won't derail your future financial security.
Household goods, furnishings, clothing and appliances are protected federally (up to certain amounts). And, most states offer similar protections, recognizing that you need basic household items like furniture, kitchenware and personal items to maintain a functional household.
Additional exemptions cover tools of your trade, allowing professionals and tradespeople to keep the equipment necessary to earn a living. Jewelry also receives a limited amount of protection federally, and you can typically keep public benefits like Social Security, unemployment compensation and veterans' benefits.
Learn more about the debt relief options you qualify for today.
Bankruptcy alternatives to consider before filing
Before filing for bankruptcy, exploring your other debt relief options makes sense, particularly if your primary concern is unsecured debt like credit cards and medical bills. In these cases, you may find that bankruptcy is a less-than-ideal approach.
One of the options you have is debt settlement, in which you or a debt relief company you work with negotiates with creditors to try and reduce your total balance in return for a lump-sum payment. While the outcomes can vary, this approach can often lower your debt by 30% to 50%, which can provide significant relief without the long-term credit impact of bankruptcy.
Credit counseling agencies also offer debt management plans that consolidate your payments into one monthly amount, typically with reduced interest rates and fees that are negotiated on your behalf. These programs often take three to five years to complete, but they can keep your accounts out of default and help you avoid the credit consequences that come with filing for bankruptcy.
There's the option to pursue debt consolidation, too. To do this, you generally take out a lower-rate loan and use it to pay off your higher-rate debts, rolling all of your debts into one fixed-rate monthly payment. Homeowners also have the option to use home equity loans or home equity lines of credit for this purpose, which usually offer lower rates than a personal or debt consolidation loan. Note, though, that these routes convert unsecured debt into secured debt backed by your home, so it's important to weigh all of the factors before doing so.
The bottom line
Bankruptcy exemptions ensure you can maintain stability while addressing overwhelming debt, allowing most filers to keep their home, car, retirement accounts and essential belongings. Understanding these protections can shift your perspective from fearing total loss to recognizing bankruptcy as a structured path forward.
Before making this decision, though, it's important to consult with a debt relief expert or bankruptcy attorney who can evaluate your specific situation under your state's laws and compare bankruptcy against other debt relief strategies that might better serve your goals. After all, the right choice ultimately depends on your complete financial picture.
