Can I Keep My Property In a Bankruptcy?
Can I Keep My Property In a Bankruptcy? This is one of the common questions asked by people considering bankruptcy as a solution to their financial problems. The good news is that the answer for most people is “Yes”. However, insuring that you are able to keep your car, home, jewelry and the signed first edition Norman Rockwell print that your great aunt Sally left you depends on the proper use of bankruptcy exemptions.
So, perhaps the better answer to the question, “Can I keep my property in a bankruptcy?,” is, it depends on if you know how to use the bankruptcy exemptions properly.
What Are Bankruptcy Exemptions?
Bankruptcy exemptions are the answer to the question, “Can I keep my property in a bankruptcy?,” so it is important that you work with an experienced bankruptcy attorney who understands these exemptions. Perhaps more importantly, you should understand what the bankruptcy exemptions, what they can and cannot do and how they work.
The bankruptcy code breaks your assets into several different categories such as: real property, vehicles, household items, jewelry, tools of the trade and many more. As a part of your bankruptcy petition you must list all of your assets in the appropriate category and estimate the value of the listed assets. There is then a dollar amount limit (exemption) that is assigned to each category under the bankruptcy code. You can keep all of the assets in each category providing the value of the asset does not exceed dollar limit exemption. Here is how it works: You have a car worth $10,000 but, you owe $8,000 on it, you have $2,000 in equity. Let’s say your exemption limit in the vehicle category is $2,750. Your vehicle would be “exempt” because the equity amount is less than the exemptible limit. Conversely, if you had $3,000 in equity then you would be over the exempt limit by $250. In this case you would have three options:
- Surrender. This means that you give the item back. For some items this may not be acceptable to you so you would need to use one or more of the remaining options.
- Buy Back. This means that rather than surrender the item, you pay the bankruptcy trustee the amount that is over the exempt limit and then you can keep it. In the above example you would pay $250.
- Use Another Exemption. In some circumstances you can use multiple exemptions for one asset category. Depending on your specific situation you may be able to use a “wild card” exemption or other exemption. You may also use a combination of multiple exemptions and buy back to retain your assets.
In most situations an experienced bankruptcy attorney will be able to protect your assets without the need for you to pay anything. This is why it is important to us an experienced bankruptcy attorney to prepare your bankruptcy.
Which Chapter of Bankruptcy Should I Choose?
If a Chapter 7 bankruptcy would require you to surrender nonexempt property that you want to keep then you may want to consider a Chapter 13 Bankruptcy. But, if you are willing to surrender the nonexempt property or, more likely, if you do not have any nonexempt property, then Chapter 7 may be the best option for you.
Essentially Chapter 7 offers this deal: If you are willing to give up your nonexempt property (or exempt property of equivalent value) to be sold for the benefit of your creditors, the court will release your dischargeable debts. If you can keep most of the things you care about, Chapter 7 bankruptcy can be a very effective remedy for your debt problems. But if Chapter 7 bankruptcy would force you to part with treasured property, you may need to look for another solution.
The laws that control what property you can keep in a Chapter 7 bankruptcy are called exceptions. Each States Legislature produces a set of exemptions for use by people who are sued in that state. These same exemptions are available to people who file for bankruptcy in that state and meet the residency requirements.
Property is not exempt and it can be taken from you and sold by the trustee to pay off your unsecured creditors. You can avoid this result by finding some cash to pay the trustee what the property is worth or convincing the trustee to accept some exempt property of roughly equal value as a substitute. Also, if nonexempt property won’t produce money at a public sale, the trustee may decide to let you keep it. For instance, few trustees bother to take well-used furniture or second-hand electric gadgets or appliances. These items generally aren’t worth what it would cost to sell them.
As you’ve no doubt figured out, the key to getting the most out of the bankruptcy process is to use exemptions to keep as much of your property as possible, while erasing as many debts as you can. To make full and proper use of your exemptions, you’ll want to:
- learn which exemptions are available to you.
- become familiar with the exemptions you can use, and
- use the available exemptions in the way that lets you keep more of your treasured property.
Can I keep my property in a bankruptcy under Chapter 13
If it looks like Chapter 7 won’t let you keep your treasured property you should consider a Chapter 13 bankruptcy. Chapter 13 lets you keep your property regardless of your exempt status, as long as you will have sufficient income over the next three to five years to pay off all of a portion of your unsecured debts and to pay off all or a portion of your unsecured debts and to pay any priority debts you have (such as back child support, alimony, and taxes) in full. However, even in Chapter 13, you will be required to propose a plan that pays your unsecured creditors a total amount that is at least equal to the value of your nonexempt property.