Everyone who considers bankruptcy wants to know the answer to that question–what will happen to my house, my car, my personal belongings. Most debtors in bankruptcy keep most or all of their property, but the methods of doing that vary, depending on the type of case you file, the kind of property you own, and the existence of any liens on that property. I think a lot of people never really explore their bankruptcy options because they assume they would lose some or all of their property, but that is simply not the case in the vast majority of cases.
A Chapter 13 bankruptcy, which is a payment plan, allows a debtor to keep all property as long as the repayment plan meets certain guidelings. Therefore, I will address the consequences of a Chapter 7 filing, and the possibilities for retaining property after a Chapter 7 filing.
A Chapter 7 is a liquidation; the Bankruptcy Court appoints a trustee whose job is to try to identify assets that can be sold to pay creditors, and liquidate those assets. Although a trustee does sometimes take property and sell it to pay creditors, there are many situations where the trustee either can’t sell it, because it is exempt, or won’t sell it, because it has only nominal value. (In fact, on a nationwide basis, the vast majority of Chapter 7 cases are “no asset” cases, in which the trustee finds no property to sell to pay creditors.) In addition to the trustee, a you will also have to determine how to deal with any lienholders. Your best option often depends on your individual situation. I will address the following possible options for keeping your property after bankruptcy:
- Exempt property
- Exempt property-avoid lien
- “Ride through”
- Buy back equity
There may be even more options, but these are the ones my clients are most likely to be able to use. Again, bear in mind that these options are primarily applicable in a Chapter 7 case. A Chapter 13 Plan takes the place of these options in most cases.
The first option available to allow you to keep certain property is to claim that property as exempt. More information about exemptions is available from a number of sources, and differs depending on what state you live in and how long you’ve been there. Determining which law to apply and what property is exempt is more complicated that it ought to be, but competent bankruptcy counsel can help you determine the extent to which equity in your home, your vehicles and other property is exempt, and is therefore simply not available to creditors or a bankruptcy trustee to pay your debts. In addition, some types of property, such as social security payments, disability payments, and most retirement plans (including 401k plans) are never available to creditors or a bankruptcy trustee. Consult with your bankruptcy lawyer to determine which of your assets are exempt if you file bankruptcy.
In Part Two, I’ll discuss how when exemptions can help get rid of (or “avoid”) a lien altogether.
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Last modified: May 23, 2013