Filing for bankruptcy can seem intimidating and daunting; however, understanding what will happen to your assets when filing can bring more clarity and control to the process. No matter if it be Chapter 7 or 13 bankruptcy proceedings, one of the major concerns many have when they consider declaring is: Will I lose everything?
Chapter 7 bankruptcy, also referred to as liquidation bankruptcy, involves selling some of your property to pay off debts owed. But before panic sets in, many assets protected under exemption laws can remain with you after a liquidation bankruptcy is filed.
What Are Exempt Assets (Exemption Laws)
Exemptions allow you to keep certain property that is considered essential to living and working. Examples may include your primary home (up to an agreed value).
- Household goods and appliances
- Your Tools in Your Trade or Profession
- Certain retirement accounts provide you with retirement protection options
- Clothing and personal products, such as toothbrushes, are important parts of daily living.
Each state imposes different exemption laws; some allow you to choose between state and federal exemptions when declaring bankruptcy. If your property falls within any exemption laws, it’s protected and cannot be taken by a trustee.
What Are Non-Exempt Assets?
Nonexempt assets are items not protected under bankruptcy laws and might include items like second vehicles, vacation homes, and luxury items (like designer handbags or expensive electronics ).
Valuable collections (art, coins, etc) must be safeguarded with care to preserve them for future generations.
Depending on the details of your case, any non-exempt assets could be sold off to pay creditors. However, many Chapter 7 cases qualify as “no asset cases”, meaning all property protected under exemption laws remains with the filer.
Chapter 13 Bankruptcy: Reorganization Without Liquidation
When filing Chapter 13 bankruptcy, no property is surrendered voluntarily; rather, you enter into a court-approved repayment plan of three to five years’ duration based on both income and debts accumulated during that timeframe.
What Will Happen to My Assets in Chapter 13 Bankruptcy?
In general, Chapter 13 bankruptcy allows you to keep most or all of your property while paying creditors an amount equivalent to what they would’ve received had your assets been liquidated under Chapter 7. Depending on their value and exemption eligibility statuses, Chapter 13 could lead to higher monthly repayment costs; hence, making this form of bankruptcy suitable for individuals who: Have steady income sources, Need debt relief, but do you need to make up any missed mortgage or car payments?
They want to retain ownership and manage it themselves? They may own nonexempt property that needs to be maintained.
This post was written by Trey Wright, a Chapter 11 Bankruptcy Lawyer in Jacksonville FL! Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, specializing in bankruptcy law, estate planning, and business litigation.
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