There are a series of state law exemptions that we use so that you can keep some of your stuff. If we exempt something from the bankruptcy estate it does not become part of the bankruptcy and you get to keep it
For example: all of your household goods and furniture is able to be exempted. Your clothing is exempt. Some of the equity in your house (assuming you have equity) is exempt up to a certain amount.
The reason for exemptions is so that people will not be reliant on the state due to the fact that they filed bankruptcy. The government realizes that people need certain items to be able to live and they do not want to deprive people of those items so the state makes a public policy decision as to what they will allow people to keep and what they won’t or how much of a certain category of items you are allowed to keep.
Some items can be fully exempt and some items can be only partially exempt. In the case of partially exempt items if you want to keep them you will have to “buy” the item from the bankruptcy estate by paying the trustee the non-exempt amount of the item. If you allow the trustee to sell the item you are entitled to keep the exempt portion in the form of money from the sale of the item.
Exemption planning can be complicated and gets tricky if you have assets. Make sure you seek the advise of an attorney before you do anything especially if you think that you may have a non or partially exempt item. Attorney’s are allowed to help their clients to plan for bankruptcy by transferring a potentially non-exempt asset into an exempt one but this should only be done under the direct supervision and advise of an Attorney.