Quick Summary

This guide explains what assets are protected in bankruptcy, how exemptions work, and the legal steps you can take to secure what matters most. Whether you own real estate, cryptocurrency, or other high-risk holdings, learn how Blake Harris Law can help you protect your property before financial problems become legal consequences. For more insights on safeguarding your assets, feel free to explore more Blake Harris Law articles. 

Bankruptcy Does Not Mean Starting from Zero

Bankruptcy does not result in the loss of all property. Although certain assets may be sold to satisfy creditors, federal and state exemption laws protect specific categories of property. Understanding these protections allows individuals to make strategic decisions before initiating a bankruptcy filing.

Common exempt assets include a primary residence, retirement accounts, and essential personal belongings. However, high-value or nontraditional assets—such as cryptocurrency—often fall outside these standard protections. These assets require careful planning to safeguard.

This Blake Harris Law article explains which of your assets are protected in bankruptcy and how to protect others using legal tools such as offshore trusts.  

Why Listen to Us? 

At Blake Harris Law, we focus exclusively on asset protection. Our team helps clients protect their wealth through offshore trusts in the Cook Islands, Nevis, and Belize. 

 

We have worked with high-net-worth individuals across the United States to secure assets like real estate, business interests, and cryptocurrency. This guide reflects the same strategies we use to help clients prepare before financial trouble leads to bankruptcy or legal exposure.

Understanding How Bankruptcy Works 

Bankruptcy is a legal process available to individuals and businesses that cannot repay their debts. The two primary types for individuals are Chapter 7 and Chapter 13.

  • Chapter 7 – Liquidation: Here, a court-appointed trustee may sell nonexempt assets to pay creditors. However, exemption laws allow individuals to retain specific property. 
  • Chapter 13 – Reorganization: Chapter 13 allows individuals with steady incomes to keep their assets while repaying debts under a court-approved plan lasting three to five years. This option is generally used by those who can meet monthly obligations and want to avoid asset sales.

Exemptions determine what property can be retained in both types of bankruptcy. Effective prebankruptcy planning can increase the likelihood of preserving key assets.

Understanding Bankruptcy Exemptions

Bankruptcy exemptions allow you to protect specific assets from liquidation during bankruptcy proceedings. Depending on the debtor’s jurisdiction and situation, these exemptions may be claimed under federal or state law.

Federal Exemptions

As of April 1, 2025, federal bankruptcy exemptions protect the following assets:

  • Primary Residence: Up to $31,575 in equity under the homestead exemption
  • Motor Vehicle: Up to $5,025 in vehicle equity
  • Personal Property:
    • Household goods: Up to $800 per item, with a total limit of $16,850
    • Jewelry: Up to $2,125
    • Tools of the trade: Up to $3,175
  • Wildcard Exemption: Up to $1,675 in any property, plus up to $15,800 of unused homestead exemption
  • Retirement Accounts: Most tax-exempt retirement accounts, including 401(k)s and IRAs, are protected up to $1,711,975

These exemption amounts are adjusted every three years for inflation. The current figures apply to cases filed on or after April 1, 2025.

State Exemptions

Each state enacts its own exemption laws. Some allow individuals to choose between federal and state exemptions, while others require the use of state-specific rules. In some cases, state exemptions offer more favorable terms, such as higher homestead allowances or broader protection for personal property.

Choosing the appropriate exemption system depends on the type and value of the assets involved. Before filing, it is essential to evaluate state and federal protections.

Assets Not Covered by Bankruptcy Exemptions

Not all property is protected during bankruptcy. While exemptions cover essential assets, non-exempt assets can be sold in Chapter 7 or factored into repayment under Chapter 13. These typically include items considered nonessential or high in value, such as: 

  • Secondary Residences: Vacation homes, rental properties, or any property that is not your primary residence
  • Additional Vehicles: A second car or truck, unless both you and a joint filer claim one vehicle each under available exemptions
  • Non-Retirement Investments: Stocks, bonds, mutual funds, and other accounts not held in retirement-specific plans
  • Recreational Vehicles: Boats, ATVs, snowmobiles, and similar leisure assets
  • Luxury Items: High-end clothing, expensive jewelry, designer goods, or custom accessories
  • Collectibles and Hobby Equipment: Art, coin or stamp collections, and specialized hobby tools not used for income
  • Family Heirlooms: High-value inherited items with significant resale potential
  • Musical Instruments: Instruments not used as a primary source of income
  • Excess Household Electronics: Duplicate televisions, computers, or other nonessential devices

Knowing which of your assets fall outside exemption limits is key before filing. With the right planning, you can reduce exposure and make smarter decisions about what to keep and what may be subject to liquidation.

Benefits of Asset Protection in Bankruptcy

  • Preserve Essential Property: Legal exemptions and planning tools allow you to retain critical assets such as a primary residence, vehicle, retirement accounts, and cryptocurrency during bankruptcy.
  • Maintain Business Continuity: As a business owner, asset protection can help you safeguard operational assets, minimizing disruptions during financial restructuring.
  • Secure Retirement Accounts: Planning ensures that your tax-qualified accounts, such as 401(k)s and IRAs, remain protected from creditors, preserving long-term financial stability.
  • Protect Cryptocurrency: Including cryptocurrency in prebankruptcy asset protection planning helps prevent the loss of these high-risk digital assets during proceedings.
  • Improve Negotiation Position: Protected assets can strengthen your position when negotiating with creditors, potentially resulting in more favorable repayment terms.
  • Reduce Legal and Financial Stress: Knowing that key assets are protected can provide greater confidence throughout the bankruptcy process.

How to Protect Your Assets in Bankruptcy: A Step-by-Step Guide

Step 1. Evaluate Your Financial Situation

Start by creating a clear picture of your financial position. List all assets, debts, income, and expenses in detail. This information is essential for determining whether Chapter 7 or Chapter 13 bankruptcy is appropriate.

Key areas to assess:

  • Assets: Real estate, vehicles, bank accounts, retirement accounts, and cryptocurrency
  • Liabilities: Credit cards, medical debt, loans, and secured obligations
  • Income: Employment earnings, bonuses, rental income, and other sources
  • Expenses: Mortgage or rent, utilities, insurance, and daily living costs

A complete financial overview helps you identify which assets are at risk and which can be protected. Blake Harris Law can assist in building a strategy tailored to your situation.

Step 2. Understand and Maximize Exemptions

Bankruptcy exemptions determine which assets you can legally keep during the process. These rules vary by state and can have a major effect on what you retain after filing.

Key exemption types include:

  • Homestead: Protects equity in your primary residence
  • Motor Vehicle: Shields a portion of equity in one vehicle
  • Personal Property: Covers essential items like furniture, clothing, and professional tools
  • Wildcard: Lets you apply a set amount of protection to any property of your choice
  • Retirement Accounts: Accounts such as 401(k)s and IRAs are typically protected under federal law

Some states require you to use state exemptions only, while others allow you to choose between federal and state options. Selecting the right path requires a close look at your assets and the applicable laws.

At Blake Harris Law, we help clients evaluate both options and apply exemptions strategically to protect homes, retirement funds, cryptocurrency, and more.

Step 3. Avoid Fraudulent Transfers

Transferring assets to avoid creditor claims can be considered a fraudulent transfer, even if you did not intend to break the law. Under 11 U.S.C. § 548, any transfer made within two years before filing for bankruptcy may be reversed by the trustee.

Red flags include:

  • Transferring assets to family members or other insiders
  • Selling property for less than fair market value
  • Maintaining control or benefit over the transferred asset

Penalties are serious. You risk reversal of the transfer, denial of debt discharge, fines up to $250,000, and potential imprisonment.

To protect your assets legally, consult with a qualified attorney before making any significant transfers. Proper planning ensures compliance with bankruptcy laws and safeguards your financial interests.

Step 4. Consider Establishing Asset Protection Trusts

Standard bankruptcy exemptions may not protect all of your assets, especially high-value or nontraditional holdings. To strengthen your protection, you may want to establish an offshore asset protection trust before financial trouble arises.

Jurisdictions such as the Cook Islands, Nevis, and Belize offer strong legal structures that resist foreign judgment enforcement. These trusts are particularly effective in protecting cryptocurrency, real estate, and investment portfolios.

Key benefits include:

  • Legal Separation: Assets are held by an independent trustee, making them more difficult for creditors to access
  • Jurisdictional Protection: Creditors must pursue claims in the trust’s jurisdiction, where legal standards are often higher and more creditor-resistant
  • Confidentiality: Offshore jurisdictions typically enforce strict privacy laws that keep trust arrangements confidential

Timing matters. Transfers made shortly before filing for bankruptcy can be challenged. Advance planning is necessary to avoid legal issues and ensure the trust is effective.

With experience in offshore asset protection, Blake Harris Law helps clients establish offshore trusts in the Cook Islands, Nevis, and Belize. These structures are designed to comply with legal requirements while protecting assets, including cryptocurrency, from future claims.

Step 5. Maintain Accurate Financial Records

Accurate financial records are critical for a smooth and successful bankruptcy process. They help determine your eligibility, support your exemption claims, and prevent delays or case dismissal.

To keep your records in order:

  • Collect all relevant documents, including bank statements, credit card statements, invoices, and receipts
  • If exact amounts are unavailable, make reasonable estimates and clearly explain any discrepancies
  • Consult a bankruptcy attorney or financial advisor for help with uncertain or complex entries

Keeping detailed financial records not only supports your bankruptcy filing but also reduces the risk of legal complications. Strong recordkeeping can also improve long-term financial habits and help you avoid similar issues in the future.

Protect What You Can, Plan for What You Cannot

Bankruptcy does not eliminate the need for financial planning. You can reduce your losses and protect key assets with the proper exemptions and asset protection strategies. Blake Harris Law helps clients act before legal trouble escalates.

At Blake Harris Law, we focus on asset protection through tailored legal structures, including offshore trusts in the Cook Islands, Nevis, and Belize. Our firm safeguards your assets, including cryptocurrency and real estate, vulnerable to bankruptcy.

Schedule a confidential consultation with Blake Harris Law today.