Do I Have to Give Up Things That I Own Outright When I File Bankruptcy?
Making the decision to file personal bankruptcy is a difficult one. You may hesitate to file because of shame or guilt. You may also fear that if you file bankruptcy you will lose everything, even property that you own free and clear. These fears are nearly always unfounded. You may keep at least some of your personal property, whether you file Chapter 13 or Chapter 7 bankruptcy. Consult with a legal professional that specializes in bankruptcy law with specific questions about your financial circumstances.
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Chapter 13 Bankruptcy
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When you file Chapter 13 bankruptcy, you must provide a repayment plan to repay at least some of your debts. If the bankruptcy court approves your plan, the court will discharge your debts once you complete the payment plan. You do not have to give up any property you own to file Chapter 13 bankruptcy, even if your payment plan only covers a portion of your total debts. For this reason, if you own a home and other big-ticket items that you wish to keep, file for Chapter 13 bankruptcy if you can afford to make payments.
Chapter 7 Bankruptcy
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Chapter 7 bankruptcy is what some people consider "straight" bankruptcy, according the Law Offices of Paul A. Moses, which includes bankruptcy as an area of practice specialty. When you file Chapter 7 bankruptcy, you place your nonexempt assets in the hands of a bankruptcy trustee appointed by the court. The court charges the trustee with liquidating your property and dividing the proceeds among your creditors. Once the process of liquidation and redistribution is complete, the court discharges your debts. The court will grant you a Chapter 7 discharge even if your liquidated assets do not generate enough revenue to completely settle your debts.
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Chapter 7 Bankruptcy Exemptions
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As a debtor, you many not have substantial possessions beyond a home that serves as a primary residence, a car, clothing, household goods and personal effects. Under Chapter 7 bankruptcy, you may withhold many personal possessions from the bankruptcy trustee through bankruptcy exemptions designed to help you avoid the increasing financial distress of relinquishing personal property. In addition, many states have replaced federal bankruptcy exemptions for personal property with their own bankruptcy exemptions that may be more or less generous than the federal bankruptcy exemption allowance. Federal non-bankruptcy exemptions supplement state bankruptcy exemptions for debtors who cannot or choose not to claim federal bankruptcy exemptions.
Other Means of Keeping Personal Possessions
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The trustee or your creditors cannot seize certain personal property under any circumstances, including retirement accounts and most goods and property you obtain after you file your petition. You may also be able to keep nonexempt property if the trustee determines that the expense of selling it would be greater than the proceeds of the sale. You may also negotiate a trade to keep nonexempt property in exchange for exempt property of equivalent value, or you may be able to "buy back" certain nonexempt items.
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References
- TheFreeDictionary Legal Dictionary: Bankruptcy
- TheBankruptcySite.org: Will I Lose All My Property If I File for Bankruptcy?
- TheBankruptcySite.org; Bankruptcy Exemptions -- What Do I Keep When I File For Bankruptcy?; Kathleen Michon
- TheBankruptcySite.org; Federal Bankruptcy Exemptions; Kathleen Michon
- Paul A. Moses, Attorney at Law: Bankruptcy Primer
- Bankrate.com: 12 Myths About Bankruptcy
- TheBankruptcySite.org; Federal Nonbankruptcy Exemptions; Kathleen Michon
- TheBankruptcySite.org; Property That Is Not in Your Bankruptcy Estate; Stephen Elias
