Can You Claim Your House & Cars in Bankruptcy?
You have two main options if you need to file for bankruptcy because your debts are overcoming your ability for payment. You can file for Chapter 13 and repay your debts to your creditors at lower interest rates, or file for Chapter 7 and erase all dischargeable debts. However, Chapter 7 also requires the court to sell your assets and property, unless you claim them under exemption laws.
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Chapter 7 Description
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A Chapter 7 filing allows the court to eliminate your debts and erase all responsibility you have of paying them. To do so, the court must sell your assets and pay your creditors back with the money collected from the sale. However, the Bankruptcy Code states that some of your assets and property are exempt if they are necessary for you and your family's monthly support. These laws are called exemption laws. The federal courts have established their own federal exemptions that you can claim, but states are also given the right to establish their own exemptions. Some states require you to use their laws of exemption, and some states let you choose whether you will claim according to federal or state laws.
Federal Exemptions
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Under federal laws, you have the right to claim some of your assets as exempt when you file for Chapter 7. Assets and property that are included in the federal exemption include your vehicle or your house. Under federal exemption, you cannot claim more than one vehicle or one house. If you are filing jointly with your spouse, both of you can claim exemptions and thereby double the exemption values. Other federal exemptions include furniture up to a specific value, clothing, public benefits and life insurance proceeds.
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State Exemptions
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You can claim state exemptions instead of federal exemptions if you desire to. Some states require you to claim state exemptions. The value of exemptions you can claim, and the assets and property included in the exemption laws vary from state to state. Most states include a house and a vehicle in their exemption laws. Some states might allow you to claim more than one vehicle depending on your family size. The value of exemption for your house depends on marital status and the size of your family. You can go to your state bankruptcy court website to find information on the exemptions you are allowed to claim.
Considerations
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Even though you can claim exemptions to protect your house and vehicle -- and other assets -- you might not qualify to file for Chapter 7. This might happen if your income is higher than the average income in your state and your necessary expenses are not as high as you income. In this case, you might be able to file for Chapter 13. A Chapter 13 filing does not require the court to sell your property and assets, since its main objective is to allow you to pay your creditors, instead of erasing your debts. If you do not want to lose any of your assets, you can consider this option when you file for bankruptcy.
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