Bankruptcy exemptions protect the equity in your property from creditors and the bankruptcy court—preventing the equity from being used to pay your creditors. Equity is the value of property after you subtract the amount of any liens against the property from its fair market value.

The equity in your home is one such asset in bankruptcy. And bankruptcy exemptions—including the homestead exemption—allow you to protect the property you will need to maintain a home and employment after bankruptcy.

Bankruptcy exemption amounts vary by state, so the amount you will be able to protect will depend on where you live and the type of bankruptcy you file (Chapter 7 or Chapter 13).

In Washington State, bankruptcy exemptions play a crucial role in both Chapter 7 and Chapter 13 bankruptcy filings. These exemptions allow individuals to keep certain property from being liquidated or claimed by creditors. The homestead exemption is particularly significant as it protects the equity in a debtor's home. As of the knowledge cutoff in 2023, Washington's homestead exemption allows debtors to exempt up to $125,000 of their home's equity. This means that if the equity in the home does not exceed this amount, it cannot be used to pay off creditors in a bankruptcy case. It's important to note that exemption amounts are subject to change, and debtors have the option to choose between state and federal exemption schemes in Washington. The choice between state and federal exemptions can significantly impact the assets a debtor is able to retain. An attorney can provide guidance on the most beneficial exemption scheme based on an individual's specific circumstances.