Chapter 7 bankruptcy contains the potential for filers to lose personal assets. However, there are a few good reasons why almost no filers ever lose any property when they file. If an asset is not protected by exemptions, it could be seized by the trustee and sold. The money is then used for various bankruptcy administrative costs and some high-priority creditors. It's important for filers to understand what protects their property from the bankruptcy trustee so read below to find out more.
When You Have Exempt Assets
An exempt asset is protected by the bankruptcy code. Each state has its own manner of dealing with exemptions. The states vary widely so ask your bankruptcy lawyer about filing in a different state if you are qualified (usually possible after you have moved to a new state). You can also change the way your assets are treated by using either state exemptions or federal exemptions. Only a few states allow the filer to make that choice.
Most states allow filers who are filing jointly with a married partner to also double up on the exemptions. For instance, if a couple's state of residence allows a single filer to exempt $20,000 of their personal property, the figure could double to $40,000 when they file jointly. Finally, many states offer a so-called wildcard exemption of several thousand dollars that may be used to protect any item the filer wishes.
Common Asset Exemptions
The act of filing for bankruptcy is not meant to leave filers with no belongings even if it clears them from all their debts. In most cases, states will mention important assets like a primary residence in the exemption list. However, a vacation or second home may be seized by the trustee. One primary vehicle for each filer may be exempt but the level of protection depends on how much is owed on the vehicle. Work tools and supplies are usually exempt along with some heirloom jewelry, retirement accounts, and more.
What Filers Should Do
Though the thought of losing personal property can cause you to fear following through on the filing, speak to a bankruptcy lawyer and get more information about your state exemptions. Follow these tips so that you will have a clear picture of what to expect with a filing:
- Create a complete list of your assets and their value.
- Be sure to deduct any loan balances from the value of the item.
- Discuss your assets with a bankruptcy lawyer so that an informed decision is possible.
- Your lawyer can also help you arrange to surrender property you know will be seized.
- In some cases, you will be allowed to use an exempt asset to protect a non-exempt asset.
Speak to a bankruptcy attorney to find out more.