The exemption toolbox: what your state protects automatically

Every state protects certain categories of property from creditors automatically, no LLC, no trust, no planning required. Most people never learn what their own state actually shields until a creditor is already asking, and the honest reason this page exists is that the variance between states is enormous enough to change the entire calculus of what else is worth doing.

Homestead: the widest range in this entire toolbox

Homestead exemptions protect equity in a primary residence, and the spread across states runs from effectively nothing to effectively unlimited. Seven states, Florida, Texas, Iowa, Kansas, Oklahoma, South Dakota, and Arkansas, protect homestead equity with no dollar cap at all, subject only to acreage limits rather than a value ceiling. A handful of others sit in a real middle range: Nevada protects up to $605,000, Massachusetts $500,000 if a declaration is filed and $125,000 automatically without one, Rhode Island $500,000, Minnesota $450,000 for a residence. On the other end, New Jersey provides no homestead creditor exemption at all, and Kentucky’s is set at $5,000, a figure that hasn’t kept pace with any home price in decades. The same equity that’s completely untouchable in one state is fully exposed one border over.

The insight buried in “unlimited”

An unlimited state homestead exemption looks like an absolute promise, and it isn’t quite one the moment bankruptcy enters the picture. Federal bankruptcy law caps the homestead exemption a debtor can claim on equity acquired within a defined window before filing, regardless of how generous the state’s own exemption is, specifically to prevent someone from moving to Florida or Texas and buying a mansion the moment trouble appears, converting exposed cash into an unlimited-protection home on the eve of bankruptcy. Older, already-owned homestead equity generally escapes this cap; recently acquired equity does not. This is why Florida’s own bankruptcy practice treats a real residency and ownership history as part of what actually secures the state’s unlimited protection, not merely holding the deed on paper. Outside of bankruptcy, in ordinary state court collection, this federal timing cap doesn’t apply at all, which means the same homestead can be fully protected the day after purchase against a state court judgment while still being capped if bankruptcy is filed shortly after. Two different courtrooms, two different answers, from the exact same house.

The exception that directly challenges the previous page

The fraudulent transfer page describes converting non-exempt assets into an exempt form, cash into homestead equity, right before trouble arrives, as exactly the kind of move that can be unwound as a fraudulent conversion. Florida’s Supreme Court has carved out a real and specific exception to this in its own state: converting liquid, non-exempt assets into Florida homestead equity is not treated as a voidable transfer under Florida law, even where the debtor’s specific intent was to place those assets beyond a creditor’s reach, because the state’s own constitutional homestead protection has been read to override the ordinary fraudulent-transfer analysis entirely. No other unlimited-homestead state offers this same conversion shield. This is not a loophole to casually recommend; it is a genuine, state-specific legal fact that changes the entire risk calculus of the exact move this site otherwise warns against, and it only holds inside Florida’s own borders, under Florida’s own law, for Florida real property specifically.

Retirement accounts: two completely different protections wearing the same name

Employer-sponsored plans qualified under ERISA, most 401(k)s and pensions, carry federal anti-alienation protection that is unlimited, both inside and outside of bankruptcy, and doesn’t depend on any state’s exemption statute at all, covered on the threat model. IRAs are a different animal entirely. They are not ERISA-qualified, and outside of bankruptcy, protection depends purely on state law, ranging from full, uncapped protection in states like Florida, Texas, Illinois, and New Jersey, notably including New Jersey even though that same state offers no homestead protection at all, to hard dollar caps in states like Nevada and South Dakota, to a needs-based standard in states like Georgia that protects only what a court decides is reasonably necessary for the debtor’s actual support.

Inside bankruptcy specifically, a separate federal cap applies to ordinary IRA contributions, adjusted periodically for inflation, currently in the seven figures. Funds that reached the IRA by rollover from a genuine ERISA-qualified employer plan retain unlimited protection even in bankruptcy, entirely outside that cap, but only as long as those rollover funds are kept in an account separate from ordinary annual contributions. Commingling rollover money with new contributions in the same account collapses the entire balance down to the capped, ordinary-contribution treatment, since the funds can no longer be traced back to their protected source. Someone who left a job with a large 401(k), rolled it into an IRA, and then kept contributing new money to that same account may have unknowingly converted an unlimited federal protection into a capped one, simply by not maintaining two accounts instead of one.

The inherited IRA trap

An IRA a person inherits, rather than contributes to themselves, loses federal bankruptcy protection entirely, regardless of size, under a unanimous Supreme Court ruling holding that inherited IRAs aren’t retirement funds for the beneficiary in the way the exemption was written to protect. Only a handful of states have written their own statutes to specifically restore protection for inherited IRAs even in bankruptcy. Everywhere else, an IRA left directly to a child or other heir carries real exposure the original owner’s own account never had. The fix, where it matters, generally isn’t a bigger account. It’s naming a properly drafted trust with spendthrift protection as the beneficiary instead of the individual directly, the same tool covered on trusts and LLCs, since a trust’s own protection doesn’t depend on which state the eventual beneficiary happens to live in.

The Roth conversion trap nobody prices in

A handful of states that fully protect traditional IRAs use statutory language that courts have read more narrowly for Roth accounts, meaning converting a traditional IRA to a Roth, a move almost always evaluated purely on tax grounds, can in those specific states quietly reduce creditor protection on the same dollars. This is exactly the kind of interaction a tax advisor running conversion math and an asset protection plan built independently would each miss on their own, since neither professional is typically checking the other’s field before recommending the move.

What to actually do

Learn your own state’s actual homestead and IRA exemption amounts before assuming either is generous or worthless; both vary enormously and rarely match popular assumption. Keep rollover retirement funds in a separate account from new contributions, permanently, not just until it feels inconvenient. If a retirement account of real size is going to a non-spouse heir, price a spendthrift trust as the named beneficiary rather than the individual. And treat any state-specific exemption exception, Florida’s homestead conversion shield included, as exactly that: specific to one state’s law, not a general principle to import somewhere else.