In keeping with the goal of bankruptcy laws to rehabilitate rather than punish the debtor, the individual debtor is permitted to keep some property that otherwise would be included in the bankruptcy estate and liquidated. These are called exemptions. Exemptions ensure that the debtor is able to survive the bankruptcy process without becoming destitute and having to rely on additional government assistance once the process is complete. Property that is commonly deemed exempt from the bankruptcy estate usually includes a home, a personal car, and personal items such as clothing.
The federal bankruptcy statute lists allowable exemptions, and these are followed in some states. But the federal law also permits states to legislate their own list of bankruptcy exemptions (in fact, 35 states do not allow debtors to take the federal exemptions). This results in widely varying types and amounts of exemptions that depend on the debtor’s state of residence.