Some people think that you lose everything when you file bankruptcy. That is simply false. In fact, you do not lose anything if you file a repayment plan Chapter 13 bankruptcy. During Chapter 13 you pay your unsecured creditors (e.g. medical bills and credit cards) what you are able over three to five years, and the remaining balance is discharged.
A Chapter 7 bankruptcy is a liquidation bankruptcy and your property may be at risk to be takenand sold to pay creditors. However, the bankruptcy laws provide three ways to protect your property during bankruptcy: (1) when the property is not part of the bankruptcy estate; (2) when there is no equity in the property; or (3) when the property is exempt under state or federal law.
Some property cannot be taken from you because you do not own it. For instance, if you drive your mother’s car, it cannot be taken and sold during your bankruptcy. Property that is owned by another person and is in your possession must be disclosed in your bankruptcy schedules.
Secured property, like a home or vehicle, that is “upside-down” in value (not worth more than what is owed) cannot be taken during a Chapter 7 bankruptcy. There is nothing left after paying the secured creditor. For instance, if you owe $10,000 on your car, and it is worth $8,000, your car cannot be taken and sold during the bankruptcy.
Typical bankruptcy debtors own clothing, furniture, household goods, jewelry, and other personal items. While individually these items are not worth much, collectively they may be worth thousands of dollars. State and/or federal laws allow bankruptcy debtors to keep items reasonably necessary for day-to-day living through the use of exemptions. However, many exemptions are capped by a dollar amount to prevent abuse. For instance, while a $1,000 family piano may be exempt under state law, a $100,000 Steinway grand piano is not. Modest equity in vehicles, clothing, reasonable jewelry, retirement accounts, some savings, and even home equity are commonly exempt and protected during bankruptcy.
If you need the benefits of a bankruptcy discharge, but are worried that you will lose everything you own, speak with an experienced bankruptcy attorney and get the facts. Over 90% of Chapter 7 bankruptcy debtors keep everything, so call today and discuss your situation.