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Bankruptcy assets

One of the biggest questions people often have regarding bankruptcy is what will happen to their assets. Sometimes a family can be reluctant to declare bankruptcy because of this fear, even though all other options have been exhausted and it seems clear that bankruptcy is necessary.

First of all, you need to know the difference between the two most common forms of personal bankruptcy. These are known as Chapter 7 and Chapter 13 bankruptcy. With Chapter 7, you are trying to discharge (which means completely eliminate) your debt, or as much of it as possible. In exchange for this, you may have to liquidate some of your assets. However, the truth is that most people who declare bankruptcy do not have any assets worth liquidating. The assets they do have, such as a house and a car, are often protected by state or federal laws.

If you declare Chapter 13 bankruptcy, you don’t have to worry about liquidation of any of your assets. However, Chapter 13 requires that you pay back at least part of what you owe. In order to help you achieve this chapter 13 creates a repayment plan to make things easier for you.

What about your house? Well, even in the case of Chapter 7 bankruptcy you are usually protected when it comes to your primary place of residence. Some states even have unlimited homestead exemption, which means that you would not have to sell your house to pay off your debt regardless of how much your house is worth.

Of course, you are still responsible for paying off your mortgage, and if you do not pay your house payments then the bank can still take away your house. When the state has a homestead exemption, it simply means that you will not be forced to sell your house to pay for unsecured debts like credit cards. However, these laws vary by state, and there is often a limit on how expensive a house you can keep. Therefore it’s important to discuss all the details with a bankruptcy lawyer.

Chapter 7 is a ‘liquidation’ of nonexempt assets to pay debts. In an orderly, court-supervised procedure, a court appointed trustee liquidates the non-exempt assets of the debtor’s estate and makes distributions to creditors. In Chapter 7, the debtor selects property he/she is eligible to keep from either a list of state exemptions or exemptions provided in the Federal Bankruptcy Code. Although the debtor files a schedule C form for property claimed as exempt, the property is not exempt until the trustee files the property exemption report which actually divides the property as exempt or non-exempt.

Although state exemption laws are different from state to state, these states typically allow the debtor to keep these types of property: The debtor can exempt Up to $17,425 of equity in the home (homestead exemption). Some states have no homestead exemption; some allow debtors to protect all or most of the equity in their home. The debtor may be able to keep jewelry only worth up to $1,000, a vehicle with more than $2,400 of equity. The debtor is allowed to keep the cash value of Insurance policies. Pensions under the Employee Retirement Income Security Act (ERISA) are fully exempted in bankruptcy. Not only all public benefits, such as welfare, social security, and unemployment insurance but also tools used on job and at least 75% of wages are fully protected.

To get exemption the debtor must file the bankruptcy case in the state he/she lived in for the 730 days (2 years) before filing; or the state where he/she lived the majority of the 180 period preceding the 2-year period. Federal exemptions are retirement benefits (veteran’s benefits etc.), survivor’s benefits (judicial center director’s benefits, lighthouse worker’s benefits etc.), death disability benefits (injury compensations etc.) and miscellaneous (military group insurance etc.). One must note that federal exemptions are not available for all states.

The Bankruptcy Code allows the debtor to keep certain exempt property; but a trustee will liquidate the debtor’s remaining assets.