Filing for bankruptcy works as a lifeline for your finances. It clears all your debts and dissolves any need for creditors to continue knocking down your door. At its core, bankruptcy grants both individuals and businesses a second chance. Since money can come and go in the blink of an eye, bankruptcy offers you a chance to start over.
However, while filing bankruptcy might seem like an easy way to get out of debt, it does come with several strings attached. These can vary depending on whether your file for Chapter 7 or Chapter 13 bankruptcy. This decision can affect various factors of the bankruptcy process, from keeping property to maintaining a payment plan. However, in both cases, you must provide the court with a detailed inventory of everything that you own of any financial value. From there, the bankruptcy court will determine what you can keep and what will be liquidated to clear your debts.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy frees you from any remaining debt, granting you a second chance at rebuilding your finances. However, in order to clear your debts, the court will require that you give up all assets that are not considered “exempt” through your state’s regulations. Once you file, the court will appoint a trustee to oversee the remainder of the process. The trustee will gather and sell any “non-exempt” assets and use the money to pay off creditors. These assets most commonly include:
- Luxury cars
- Second or vacation home
- Rare artwork
Most states will allow you to keep your home, car and any items necessary for your job (i.e. laptop, desk, phone). In most cases, people who file for Chapter 7 bankruptcy don’t usually have piles of non-exempt assets and will be able to keep all property. However, you must still list any potentially non-exempt assets on your bankruptcy forms.
Chapter 13 Bankruptcy
If you choose the file for Chapter 13 bankruptcy, you will be able to keep all of your property — regardless of whether or not it is considered non-exempt. However, while the court will clear some of your debts, you must present a payment plan to clear any remaining financial obligations. These payments must be made every month for three to five years before the court officially declares you debt-free.
If you are considering filing for bankruptcy, you should meet with an attorney to assess handling your specific financial situation. Since there are several documents that go along with the bankruptcy claim, having a chapter 7 bankruptcy lawyer by your side will ensure that everything is filled and filed correctly.