One of the most overriding fears that many people have when they think about filing for bankruptcy is the fear that they will lose everything. Most people don't really know a whole lot about the bankruptcy process until they begin to look at it as a more serious option for their financial troubles, so they rely on what they have heard from others or on what they think they know.
It is true, with Chapter 7 bankruptcy in particular - known as "liquidation" bankruptcy - that some assets will need to be forfeited to the bankruptcy trustee to be sold, with that money then applied toward outstanding debts. However, there are certain assets that a bankruptcy filer can protect as part of their exemption plan.
A bankruptcy filing is intended to leave the person who is going through this process in a better financial state - a fresh start. So, naturally a person cannot simply be stripped of all their possessions and be expected to bounce back. That person will need certain essential items to move on. This, in large part, is where bankruptcy exemptions come into play.
For instance, in California a bankruptcy filer can protect the necessary clothing, appliances and household furnishings they need to live. Even some jewelry or automobiles can be exempted property - up to a certain value. And pensions, 401ks and other retirement savings could be protected as well. The key is to know what to look for and to have the right information about what is allowed and what is not.
Source: californiabankruptcy.info, "California Bankruptcy Exemptions," Accessed Jan. 11, 2015