03 Mar Bankruptcy: will “they” make me sell my stuff?
People considering bankruptcy worry a lot about keeping their belongings, especially their homes and cars. To keep houses and cars through a bankruptcy, a debtor has to know what the property is worth. Also, the “they” who can force the sale of property depends on the property itself. Debtors need to satisfy two different parties to keep an asset subject to a lien, in other words the property is collateral pledged to secure a loan.
- Trustee: The bankruptcy trustee is looking out for the unsecured creditors
- Secured Lender: the lender is looking out for itself
So how does this play out in the case, especially when it comes to the debtor’s property?
If there is equity that isn’t exempt then the trustee can sell it, in Chapter 7, to pay towards the unsecured debts. In Chapter 13, the debtor would have to pay the value of the non-exempt equity to keep the property, but would get up to five years to make payments in a Chapter 13 plan.
But if the value of property, for example a car, is less than the amount owed on the car loan, plus any exemption that protects the debtor’s interest in the car, the trustee is not interested in the property. There is no value in that asset that can be realized for the benefit of unsecured creditors if the property was sold.
One hurdle down.
One more to go.
However, even if there isn’t any equity, to keep the asset after the bankruptcy, the debtor has to keep the secured creditor happy (i.e. keep payments paid and current). The lender wants monthly payments, not the asset. The lien on the car provides the threat of repossession to keep the payments flowing.
So to pass the second hurdle, generally if you make the payments* you can keep the car. “They” are content.
* You may need to reaffirm the debt or adhere to other requirements as well, and you should discuss that with your attorney.
This calculation points up the importance of getting the value of your “stuff” correct.
Overstate the value and you suggest that the trustee could sell your asset for your creditors. Understate it, and you have a different problem which isdiscussedhere.
Cathy Moran, Esq.
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