Using Exemptions in an Individual Chapter 11 Bankruptcy

Bankruptcy exemptions are legal protections that allow debtors to keep certain property out of the reach of creditors when seeking bankruptcy relief. While exemptions are most frequently associated with Chapter 7 (liquidation) and Chapter 13 (wage earner’s reorganization) cases, they are also relevant in Chapter 11 bankruptcies when the debtor is an individual, rather than a business entity. In these scenarios, exemptions play an important role in determining what assets the individual debtor may retain, as well as how much must be paid to creditors through the Chapter 11 plan of reorganization.

Most individuals file for Chapter 7 or Chapter 13 bankruptcy. However, certain debtors cannot qualify for Chapter 7 due to the “means test,” or for Chapter 13 because their debts exceed the limits imposed by law. As of 2025, the Chapter 13 limits are $526,700 for unsecured debts and $1,580,125 for secured debts. Chapter 11 has no debt limits, making it an option for high-income individuals or those with significant liabilities — such as business owners, real estate investors, or professionals with substantial debts. Chapter 11 offers flexibility in restructuring debts, modifying secured loans, and negotiating creditor payments under a court-approved plan.

Bankruptcy exemptions shield certain assets — like a primary residence, a vehicle, or qualified retirement accounts — from liquidation or forced sale. These protections, enumerated under federal or state statutes, are intended to allow debtors to retain basic necessities for a fresh financial start.

Key aspects of exemption use in Chapter 11 include:

• Eligibility based on domicile — A debtor’s eligibility to claim state or federal exemptions is determined by where they’ve lived prior to filing. If the debtor has lived in one state for 730 days (two years) before filing, they must use that state’s exemption laws. If they’ve lived in more than one state during the past two years, the exemptions of the state where they resided for the majority of the 180 days before the two-year period apply. This rule helps prevent debtors from moving to states with more generous exemptions just before filing for bankruptcy.
• Application in Chapter 11 — In Chapter 11, exempt assets are excluded from the bankruptcy estate and are not used to satisfy creditor claims. This means that these assets remain with the debtor. Exemptions also influence how much a debtor must pay unsecured creditors under the reorganization plan: at a minimum, the plan must pay creditors at least as much as they would receive in a Chapter 7 case, where only non-exempt property is liquidated.
• Choosing between federal and state exemptions — Some states allow debtors to choose between federal exemptions (under 11 U.S.C. § 522) and their own state’s exemption list. California requires use of state exemptions only. However, a debtor can choose between two distinct exemption systems, one of which is modeled on the federal exemptions.

Choosing the right set of exemptions requires careful analysis. An experienced bankruptcy attorney can evaluate your assets, recent moves, and financial circumstances to advise which exemptions are most advantageous in your Chapter 11 case. Properly applying exemptions can make a significant difference in your financial outcome post-bankruptcy.

At the Law Offices of Michael Jay Berger in Beverly Hills, we can advise you on the use of exemptions and help you use Chapter 11 bankruptcy to rebuild your finances. Call 310-271-6223 or contact us online to schedule a free initial consultation.