How to Protect Assets in Bankruptcy

By eHow Legal Editor

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U.S. bankruptcy law allows any debtor filing for bankruptcy to keep those assets considered necessary for a fresh start after the bankruptcy is complete. These assets are essentially exempt from bankruptcy proceedings. Furthermore, bankruptcy can actually protect your property, because, aside from the liquidation process, creditors cannot place liens on your assets or attempt to seize them.

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Instructions

Difficulty: Moderately Easy

Things You’ll Need:

List of assets and liabilities
Bankruptcy lawyer

Step1

List out your assets and liabilities on the appropriate schedule when filing for bankruptcy.

Step2

Check your state's exemption limits. The amount of property that you can protect varies from state to state. The amount is based on the present sale value.

Step3

Mark any property that you wish to protect as exempt from consideration as part of your bankruptcy estate.

Step4

Respond to any challenges from creditors in the 30 days following their meeting. If no objections are filed, you can protect the assets in question from liquidation. If there are challenges, you may need to demonstrate that the exempt property is necessary to be able to re-establish yourself after the bankruptcy is complete.

Step5

Consult a bankruptcy attorney to maximize your exemption planning.

Tips & Warnings

If your house has no equity--that is, the value you would receive from selling it is less than the amount owed--you are able to keep your home under Chapter 7, as long as you pay the mortgage. However, lenders can still foreclose if you do not pay.
If your car has unprotected equity, you may be able to buy that equity back from your bankruptcy estate and keep you car. If you still owe money on the car, you will still need to pay off the lender.
Most household goods are considered used and therefore have no resale value. Therefore, they can usually be kept by the debtor.
Pension and 401(k) plans, as well as IRAs, are never considered part of a bankruptcy estate and are not in danger of liquidation.
Many Chapter 7 bankruptcy cases are considered "no asset" cases, because debtors have exempted all of their property from liquidation.
In the typical Chapter 13 case, you can keep all of your property, whether or not it has been exempted.
Attempting to transfer assets to another person before declaring bankruptcy will not protect them from liquidation. Your bankruptcy trustee can recover any assets transferred in the last year (or more, depending on the state) unless you received equal value for the property. Trying this technique can also give the court a reason to deny your discharge of debt.