If you file for bankruptcy, you can keep certain assets for a "fresh start" by exempting property. Exempt property is taken out of the bankruptcy estate and is not available to pay the claims of creditors. You will be able to choose the exempted property from a list that varies from state to state. There are strict guidelines and dollar limits associated with exempted property to prevent debtors from using it as a "loophole."

Exemption Laws
Most Chapter 7 bankruptcy cases are "no asset" cases in which debtors exempt everything they own, leaving no assets from which to pay creditors. Exemption laws in every state allow you to keep enough income and assets to pay for day-to-day living. Used household goods and personal effects usually remain yours because they have little resale value. Pension rights and 401(k) plans, frequently the largest or second-largest asset of most families, also can't be used to pay off your debt.

In Chapter 13, the debtor selects exemptions just as in Chapter 7, although in the typical Chapter 13, the debtor keeps all of his or her property, exempt or not.

The Supreme Court ruled unanimously on April 5, 2005, that Individual Retirement Accounts (IRAs) are to be shielded from the reach of creditors in bankruptcy proceedings. The Court indicated that IRAs fall under a provision of the U.S. Bankruptcy Code that exempts payments a debtor receives “on account of age,” such as pensions and annuities, when they are necessary to support the debtor.