In bankruptcy proceedings, you stand to lose a great deal depending on the type of case you file. If you file your bankruptcy correctly, however, you may not lose much at all, perhaps nothing. The two ways you can lose property in a bankruptcy case are via the bankruptcy trustee and via your creditors. You can also lose income in bankruptcy.
The Bankruptcy Trustee
The bankruptcy trustee is a court-appointed overseer of your case. She has the legal right to confiscate some of your property in a Chapter 7 bankruptcy. The trustee does not have this right in a Chapter 13 bankruptcy. In theory, Chapter 7 bankruptcy is supposed to be a liquidation of your property, so you can satisfy your debts. However, the trustee can only legally take your "non-exempt" assets in a bankruptcy case. Whether an asset is exempt from liquidation depends on the bankruptcy laws of your individual state.
Creditors in Chapter 13 Bankruptcy
Your bankruptcy trustee does not have the right to seize your property in a Chapter 13 bankruptcy, and neither do your creditors. However, your loss in a Chapter 13 case comes from income, not property. Chapter 13 is not a liquidation bankruptcy, but reorganization. You might not have to pay your creditors the full amount you owe, but you have to make payments in a Chapter 13 bankruptcy. Generally, the court will take your payments directly from your paycheck.
Secured Creditors in Chapter 7 Bankruptcy
Even if all of your assets are exempt from liquidation, your secured creditors might be able to take property from you in a Chapter 7 bankruptcy. A bankruptcy discharge has no effect on the lien that a secured creditor generally has against your property. If you want to avoid repossession of your property, you have to keep the terms of your original secured loan. A car loan is a good example of a secured loan.
How Your State Plays a Role
In some states, you may stand to lose more property to your bankruptcy trustee than in other states. The reason for this is each state allows different property exemptions to its residents. For example, if you are a resident filing bankruptcy in Florida, you can only keep a motor vehicle with net equity of $1,000 or below. Tennessee, on the other hand, has no specific motor vehicle exemption, but does allow residents to protect up to $4,000 in any personal property, which could include a car.
- United States Courts: Chapter 7 Bankruptcy
- United States Courts: Chapter 13 Bankruptcy
- NOLO: A Chapter 7 Bankruptcy Overview
- NOLO: An Overview of Chapter 13 Bankruptcy
- Bankruptcy In Brief -- A Service of the Moran Law Group: Exemptions
- Bankruptcy In Brief -- A Service of the Moran Law Group: What Happens to Asset with Non-Exempt Equity?