If you're considering filing personal bankruptcy, one of the most important things to take into consideration is how any assets you have will be treated by the bankruptcy court. After all, the laws governing assets in bankruptcy could determine what chapter you decide to file under.
Whether you have a home, car, furniture, jewelry or other valuables that you risk losing to creditors, bankruptcy can offer some protection. Depending on the type of bankruptcy you file, you may be able to keep some or all of your possession while getting out from unmanageable debt.
Each state offers its own unique protections. If you’d like to speak with a local lawyer about your bankruptcy assets and potential financial moves, please fill out the case review form and arrange a free, no-obligation initial consultation.
Your Assets in Chapter 13 Bankruptcy
Chapter 13 bankruptcy is well-known for helping filers hang on to some of their most valuable assets. For example, Chapter 13 may help you:
- Keep your home: While the bankruptcy court cannot change what you owe on your mortgage, it may prevent foreclosure, by giving you time under an automatic stay during which creditors cannot contact you or pursue collection. Chapter 13 can consolidate past-due mortgage payments plus any home equity loan debt into an affordable payment plan.
- Keep your car: If you're at risk of losing your car to repossession, you will have an opportunity to renew or redeem a car loan in Chapter 13 bankruptcy. This can be especially helpful if you have an older car – in many cases, filers are permitted to redeem their cars for their current market value rather than the amount they owe on the loan. If you own your car outright, Chapter 13 could help you keep it out of the hands of unsecured creditors.
- Keep family heirlooms: This may play a deciding role in what type of bankruptcy you choose to file. Under many state laws, some household possessions not considered essential could be sold by the court to raise money to repay creditors in Chapter 7 bankruptcy. But in Chapter 13 bankruptcy, there is no asset sale because the filer makes payment to creditors through the court over time. So if you have some valuable family property or "luxury" items that you couldn't stand to lose, Chapter 13 bankruptcy may be a better fit for your finances.
Your Assets in Chapter 7 Bankruptcy
Chapter 7 bankruptcy is often preferred by people who have few or no assets not listed on state exemption lists. Chapter 7 works like this:
- You pass the means test: In order to file under Chapter 7 of the U.S. Bankruptcy Code, you must prove that you don't have the income to make regular payments under a Chapter 13 repayment plan. This process is known as the means test.
- Your trustee liquidates your non-exempt assets: If you have any possessions that aren't protected by state exemption laws from the bankruptcy court, your bankruptcy trustee can sell them and use the profits to repay your creditors.
- You get a debt discharge from the court: After a relatively short period of time (usually less six months), you should receive a discharge from the court, meaning that you are legally excused from paying the debts filed in your bankruptcy case.
Ask a Lawyer about Your Bankruptcy Assets
If you aren't sure which chapter of personal bankruptcy would best suit your finances, or if you’d like to ask questions about your specific assets, you can connect with a bankruptcy lawyer today.