Anyone considering personal bankruptcy is concerned about what property they can keep and what they might lose. Even if you file for Chapter 7 protection, where you erase your debts and the trustee sells your property to give the money to your creditors, you won't lose everything. If you file for Chapter 13, you can keep everything, but you must agree to a repayment plan with your creditors and keep up with your payments.
Chapter 7 Exemptions
Under Chapter 7, you can keep certain property up to a dollar limit. These are exemptions. For example, federal bankruptcy law lets you exempt more than $9,800 worth of furniture that your bankruptcy trustee can't sell to pay your creditors. You can keep $18,450 of the equity in your home. So, if your mortgage is $150,000, and your home is worth $140,000, you won't lose it, because $18,450 is more than the $10,000 difference. Exemptions also cover equity in your automobile. You must keep up with the mortgage payments or car payments, however, or your lender can demand its property back.
Federal and State Bankruptcy Exemptions
Both federal and state bankruptcy laws include lists of exempt property under Chapter 7. Some states' exemptions are better than the federal rules. In other states, they're not. Some states don't give you an option - you're stuck with your state's exemptions. Others let you choose between federal or state. This can be a tricky decision, because you have to elect the whole group of exemptions. You can't mix and match, using the federal exemption for your home and your state's exemption for your car.
Federal law also lists "excluded" property, and this does not usually have a dollar limit. For example, your trustee can't sell your retirement funds, annuities and certain trust funds, no matter how much they're worth.
You Can Buy Back Your Property
Your bankruptcy trustee doesn't care who purchases your non-exempt or non-excluded property to, as long as the trustee receives its fair value. You can usually buy back any of your property yourself from the trustee, if you have the money.
You Can Reaffirm Some Loans
You can also elect to keep a loan if you don't want to lose the collateral. For example, if you include your car loan in your bankruptcy as one of your debts, your car is the collateral for that loan, and the lender can repossess it. However, the lender will probably offer to reaffirm the debt instead, which means you're starting over with a whole new loan on your vehicle - but you'll get to keep it.
A Personal Bankruptcy Lawyer Can Help
The law surrounding exemptions and exclusions in personal bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a bankruptcy lawyer.