What Is Nonexempt Property in Bankruptcy?

Nonexempt property is property that you own that isn't protected in bankruptcy. Whether you must give up or pay for nonexempt property will depend on whether you file for Chapter 7 or 13.

In either case, you won't have to give up everything if you file for bankruptcy. Bankruptcy's purpose is to give you a fresh start, not make your life more difficult. As a result, you can "exempt" or keep property listed in your state's exemption statutes, and although exempt property varies by state, you'll be able to protect things you'll need to work and maintain a home, such as:

• a modest amount of equity in a car
• household furnishings and clothing
• tools needed in your profession, and
• your retirement account.

Learn more about protecting property with bankruptcy exemptions.

How can I tell if I have nonexempt property? Nonexempt property won't appear in the exemption list. What will happen to your nonexempt property will depend on the type of bankruptcy chapter that you file.

What happens to nonexempt property in Chapter 7 bankruptcy. When you file this bankruptcy chapter, the bankruptcy trustee—the court-appointed official responsible for managing your case—will sell your nonexempt property for the benefit of your creditors. The trustee will use the sales proceeds to pay your bills in the order required by bankruptcy law. Priority debt, such as domestic support obligations (child or spousal support) or tax debt, will get paid first. If you don't have priority debt, or if funds remain after paying it in full, the trustee will pay your nonpriority unsecured debts, such as credit card balances, personal loans, and utility bills.

What happens to nonexempt property in Chapter 13 bankruptcy. The trustee won't sell your nonexempt property. Instead, you'll pay an amount equal to the value of the nonexempt property to your unsecured creditors (creditors whose debt isn't guaranteed by collateral). For instance, suppose you can't exempt a boat worth $15,000 and a timeshare valued at $7,500. You'll need to pay your unsecured creditors at least $22,500 over the course of your three- to five-year Chapter 13 plan.