What Assets Can I Keep in Bankruptcy 7?
- A bankruptcy exemption amounts to protection from the liquidation aspect of a Chapter 7 bankruptcy. In Chapter 7, the trustee has the right to take your property and distribute its liquidated value to your creditors. However, states don't want their debtors emerging from bankruptcy without any property at all, so they grant debtors the right to keep certain items, usually basic necessities. When you file Chapter 7, you must look up what exemptions are available in your state, match them as best you can to the property you own, and enter the information in your bankruptcy petition. If you do this properly, the trustee cannot take those exempt assets.
- If you own any nonexempt assets, you can theoretically lose them to the bankruptcy trustee. However, real-world considerations can still save your nonexempt assets. In order to make a distribution of your property to creditors, the trustee has to seize your assets, sell them and make cash distributions. If the cost of this administration is more than the net value the trustee can get out of your assets, you can usually keep what you own. In other cases, the trustee may allow you to make a cash payment equal to the nonexempt value of your assets in order for you to retain possession.
- A secured asset is simply one that you have put up as collateral against a loan. The purpose of collateral is to make a lender whole in the event of your default. When you finance a car purchase, your finance company takes out a security interest in your car, entitling it to take the car back if you don't pay your loan. This right to repossession, also known as a lien, is not affected by a bankruptcy discharge. If you have a low enough equity value in your car, you can exempt it from liquidation by the bankruptcy trustee, but you cannot exempt it from repossession from your creditor. However, you can typically work out a deal with your lender and the court to keep your car, either by continuing to make your loan payments or by paying off your car.
- Exemptions can vary among the states, but most states offer similar exemption categories. For example, most states allow you to keep at least some level of equity in your homestead, with some states like Florida and Texas offering unlimited protection. California has two exemption systems, one that favors homeowners and one that allows the transfer of the homestead exemption to a "wild card" category, which lets California debtors protect any property they wish up to the level of the homestead exemption. Generally, states put dollar limits on the amount of personal property you can keep, such as jewelry or motor vehicles, while offering unlimited protection for items such as public pensions.