Bankruptcy and Your Property

How Chapter 7 and Chapter 13 Bankruptcy May Affect Your Property

One of the most common bankruptcy myths is that a debtor will lose all of his or her property by seeking bankruptcy relief. Though there are some scenarios where a debtor who files under Chapter 7 of the Bankruptcy Code may lose some assets or property, this is certainly not applicable to every bankruptcy case or even the majority of Chapter 7 filings. Most debtors are able to keep most or all of their property even when they file Chapter 7. With Chapter 13 bankruptcy, all of a debtor's property will be protected.

The specific impact that bankruptcy may have on a debtor's property and assets will vary depending on the type of bankruptcy he or she chooses as well as the applicable bankruptcy exemptions.

Bankruptcy Exemptions
Each state has its own laws that apply to exempt and non-exempt property in bankruptcy proceedings. Federal bankruptcy law also addresses this subject, and in some states a debtor may be able to choose whether to use the state exemption system or the federal bankruptcy exemptions. Depending on the exemption system, specific property may be exempt from liquidation in bankruptcy proceedings. This means that it is protected and will not have to be surrendered to the bankruptcy trustee where it would be liquidated and used to pay creditors. Some examples of property that may be protected by state and/or federal bankruptcy exemptions may include:

  • Your home, depending on the value of the property and equity
  • Motor vehicles up to a certain value
  • Personal property, such as furniture, clothing, home appliances, family heirlooms, jewelry, etc.
  • Retirement funds, pension plans, IRAs and 401(k)s
  • Insurance benefits
  • Alimony and child support payments

Chapter 7 Bankruptcy and Your Property
Chapter 7 bankruptcy will involve the liquidation of non-exempt assets to pay creditors. It will be important to find out how state or federal bankruptcy exemptions will affect your property if you are considering filing under Chapter 7 of the Bankruptcy Code.

Chapter 13 Bankruptcy and Your Property
One of the primary advantages of Chapter 13 bankruptcy is the fact that all of a debtor's property will be protected from liquidation. Chapter 13 involves a reorganization and repayment of debt as opposed to a liquidation of assets to pay off debt. As such, your property and assets will not be in jeopardy if you file under Chapter 13 of the Bankruptcy Code.

Find a local bankruptcy lawyerto help you determine how bankruptcy may affect your property.