What Are Protected Assets for a Typical Family?

Before filing for bankruptcy, you need to understand what assets bankruptcy law will protect for your family and what assets do not receive protection under the law. Although bankruptcy laws vary depending on the state where you file, the general classes of protected assets remain the same under federal bankruptcy laws.

Deciding When It’s Time to File

One mistake families commonly make when evaluating the time to file for bankruptcy concerns the evaluation of the types of assets held by the family. Individual assets either receive or do not receive protection when you file for bankruptcy. If bankruptcy laws protect a specific asset, your family can keep the asset during bankruptcy, and the bankruptcy court will not distribute the asset to your creditors. In some cases, most of your family’s assets will receive protection under bankruptcy laws. This assessment of your assets should play a significant role if and when you need to file for bankruptcy.

Some Things That Are Protected

The assets that receive protection under bankruptcy will also depend on what chapter of bankruptcy you file. Generally, bankruptcy courts look to make distinctions between protected and unprotected assets based on what your family needs to live. Therefore, essential assets, such as clothing, shelter and transportation, will receive exemption during a bankruptcy proceeding from division among your creditors. Most furniture and household items also qualify as exempt under bankruptcy laws. A bankruptcy court will also consider the value of the asset. For example, the court may allow you to keep a car but would require you to sell a late model Mercedes.

What Is Not Generally Protected

In order to satisfy your creditors, a bankruptcy court will generally order you to sell or otherwise give up many of your possessions to raise funds for your creditors. These unprotected assets include decorative items in your home, including antiques and other possessions that the court does not consider necessary for your family’s survival. Your family’s home may or may not qualify as a protected asset, depending on the value of the home, the amount of money owed on the home and the state where you file the bankruptcy.

Pre-Bankruptcy Options

If you have already made the decision to file for bankruptcy but have not filed, you can take several actions to preserve your net assets. One of your pre-bankruptcy options includes selling your home and other assets not protected under bankruptcy laws and using the money to purchase protected assets. You should, however, consult a bankruptcy attorney prior to selling any of your assets since some states do not allow you to sell assets prior to filing bankruptcy. Additionally, once you actually file for bankruptcy, you will violate bankruptcy law by selling any of your protected or unprotected assets.

References

• Law Help: Thinking About Bankruptcy? What You Need to Know Before you File; Southern Arizona Legal Aid, Inc.
• "The New Bankruptcy"; Stephen Elias Attorney