Recently on our bankruptcy forum a user asked, “I have decided I will have to file for bankruptcy. I have property such as cars, houses, tools for my job, guns, and other miscellaneous items I do not want to lose. How can I ensure that I can keep most of my assets?”
Protecting assets in bankruptcy
Chapter 7 bankruptcy is the most popular type of bankruptcy filed. Referred to as a liquidation bankruptcy, it allows a court-appointed trustee to sell certain nonexempt assets and generate income to repay creditors.
Chapter 13 bankruptcy is also a common type of bankruptcy. Although it does not discharge debts immediately, it does allow debtors to keep certain assets, which might have been liquidated in a Chapter 7 bankruptcy, and repay debts over a 3 or 5 year repayment period.
Regardless of which bankruptcy you file, however, many debtors find that many of their assets and possessions are protected or exempt from bankruptcy. Specifically, bankruptcy laws allow debtors to exempt or take out of their bankruptcy estate certain assets and possessions they need to maintain their home or to do their job.
What assets and possessions are generally exempt in bankruptcy?
Now, you ask what the best way is to protect your property and possessions in bankruptcy. Without more information it’s impossible to answer this question, but you can do some research to find the answer.
First, you will need to review the exemption list for your state and determine what assets can be exempted under the law. Keep in mind, however, the exemptions are not automatic. You must list the exempted property on Schedule C: The Property You Claim as Exempt.
Common exempted items include the following:
- Homestead exemption – amount exempted will depend on your state’s exemptions
- Vehicle exemption
- Certain furnishings and household goods
- Tools of the trade
- Certain retirement accounts
After you have determined what assets and possessions will be protected through the exemption process, you can determine whether you need to file Chapter 7 or Chapter 13 bankruptcy.
Filing Chapter 7 bankruptcy offers little protection for nonexempt assets. With this in mind, if you determine the assets you want to keep are not protected under your state’s bankruptcy exemption laws it’s likely they will be liquidated under Chapter 7. If this is the case, you will want to consider whether or not you can protect and keep them by filing Chapter 13 bankruptcy.
Individuals who want to keep their home, for example, may choose to file Chapter 13 bankruptcy. This might be especially helpful if you have mortgage payments in arrears and need time to repay these payments.
Under Chapter 13, mortgage payments in arrears can be paid over a 3 or 5 year period. It’s important to note, however, that regardless of the type of bankruptcy you file if you fail to continue to make your monthly mortgage payments the lender can foreclose on your home.
Using legal means to protect your property by utilizing bankruptcy exemptions is fine. Hiding your property or failing to list assets on your bankruptcy schedules constitutes fraud and could result in criminal penalties. Talk to a bankruptcy lawyer if you have questions about the laws in your state and how to protect your assets.
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