What Is Nonexempt Property in Bankruptcy?

Find out about assets that you won't be able to exempt (protect) in bankruptcy.

Nonexempt property is property that you own that isn't protected in bankruptcy. This isn’t to say that you’ll have to give up everything if you file for bankruptcy—you won’t. Bankruptcy’s purpose is to provide you with a fresh start, not to make your life more difficult. You’ll be able to exempt (protect) the property listed in your state’s exemption statutes, and will likely include things that you’ll need to work and maintain a home, such as:

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

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 a 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 a 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 that you aren’t able to exempt a boat worth $15,000 or 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 plan.

(For more information about nonexempt property, visit Nolo’s Bankruptcy Exemptions topic page.)

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