Debtors have two types of property -- exempt, meaning it's protected from creditors, and non-exempt, meaning creditors can seek judgment against it. A creditor may take possession of non-exempt property as repayment towards a debt. In chapter 7 bankruptcy, debtors can choose between a federal package of exemption or state exemption. Depending on state rules, state exemption may allow certain non-exempt personal items in the debtor’s home to fall under exempt status.
Bank Accounts and Investments
It is possible to have your bank accounts garnished in a bankruptcy proceeding to satisfy what you owe to creditors. Creditors must get an order from the courts for garnishment to occur. The order goes directly to your bank who then places a hold on the money until the courts make a final decision regarding repayment to your creditors. The Federal Trade Commission advises you to seek legal consultation if you receive a garnishment letter. All stocks, bonds and retirement accounts are non-exempt assets. If you receive federal benefits from the federal government, those assets are protected except in the case of unpaid taxes or student loans.
When you file for bankruptcy, you must give an account of all your personal assets to the trustee. Valuable family heirlooms are non-exempt items. Although your family heirlooms are non-exempt, a trustee may decide not to sell them if the administrative costs related to the sale exceed the value of the proceeds. Bankruptcy trustees are more apt to sell items that are worth a lot of money.
Your primary vehicle is typically considered exempt property, but a second vehicle is non-exempt. However, in chapter 7 and chapter 13 bankruptcies, you can keep a second vehicle only if your income is greater than your expenses. If this is not the case, the courts will sell your second vehicle to repay your creditors. In some instances, it is possible to structure a new loan agreement with the lender to keep your vehicle.
Depending on your state’s bankruptcy laws, your primary home and the equity within your home are usually protected from creditors. If you have non-exempt equity in your home, your may benefit more by filing chapter 13 bankruptcy instead of chapter 7. However, if you have a second home or vacation home, your creditor may seek a court order against your home to have it seized and sold. Although your second or vacation home is non-exempt property, you may have the option of entering into a reaffirmation agreement and maintaining your home. A reaffirmation is an agreement between you and the lender to re-establish the loan that was in place before the bankruptcy proceedings.