Many people are confused about what happens to their belongings when they file for bankruptcy. Most are under the mistaken assumption that you must relinquish all your assets once the bankruptcy is filed. However, it depends on the type of bankruptcy you are seeking. Individuals have the choice to file under Chapter 7 or Chapter 13.
Chapter 7 – Liquidation
Under Chapter 7 bankruptcy, you are not obligated to repay outstanding debts, but you have to list all your personal property. You must meet the income qualifications to liquidate. There is a means test that determines whether you can pay your debts. If you do not have enough income, you may have your debt discharged within three to five months.
Your belongings will be divided into exempt and non-exempt categories. Exempt property may include:
- Your home and furniture
- A vehicle
- Your clothes
- Retirement accounts
- Tools necessary to do your job
Some states have a dollar amount that can be used to protect some property, as well. Depending on how much property you own, you may be able to exempt most or all of your personal property. Rules vary from state to state: some use the federal exemptions, and others have state exemption rules that will determine what property is protected.
Even non-exempt property may not be seized for sale. If the equity in the asset is nominal, it may not make financial sense for the trustee to take it. An example would be a second car where the amount owed on the loan is almost as much as the value of the vehicle. You may also keep some non-exempt assets if you want to give up something else that is exempt in exchange.
Chapter 13 – Reorganization
If you file for Chapter 13 bankruptcy protection, you do not have to surrender your property. This type of protection allows you time to propose a repayment plan to reorganize and repay all or most of your debt on a specified timetable. You must agree to pay off the aggregated amount of debt on time within three to five years, depending on the amount of debt and income. If you pay all the payments on time, the dischargeable debt will be forgiven.
If you are facing financial hardship, and need more information about your options, contact an asset protection lawyer in New Haven, CT. By using a lawyer, you will be able to get advice about the bankruptcy laws in your state.
Thanks to The Law Offices of Ronald I. Chorches for their insight into bankruptcy law and your property.