In the movies and TV, bankruptcy is often portrayed as losing everything. The repo man shows up at your door and takes all your possessions, but reality is a little different. Bankruptcy is designed to help you get a fresh start, but the government understands that you still need to work and live. There are federal and state laws that outline what you can keep in a bankruptcy. Here are some of the general rules that apply.
What Can You Keep in a Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy is a repayment plan to get you back on track with creditors. You can retain all of your property in a Chapter 13 bankruptcy. You can keep your house and car, provided you can still make payments. In general, your clothes and belongings are exempt. Luxury items, such as boats, collectibles that have value, artwork, or jewelry, are usually non-exempt. Although you can keep these items, you may have to pay more to your unsecured creditors through your plan. The bankruptcy court won’t require you to sell your non-exempt items, but you may be penalized for having them.
What Property Can You Keep in a Chapter 7 Bankruptcy?
With a Chapter 7 bankruptcy, your debts may be discharged, so exemptions work a little differently. You can keep certain types of property up to a certain amount. Every state has different limits, so it depends on where you live. The premise is the same, regardless of the limit. For example, in your state, there is an exemption for motor vehicles up to $5,000. If your car is worth $4,000, you’d be allowed to keep your vehicle. If your car is worth $10,000, the bankruptcy trustee could sell your car. You would get to keep $5,000, the exemption value, then the remaining amount would be divided among your creditors.
Your house, your car, your household goods and personal clothes are generally exempt in a Chapter 7 bankruptcy. Your house is exempt up to a certain amount of equity. However, you do have to be up-to-date with payments, or the mortgage company can take it back. Retirement accounts are usually protected in a Chapter 7 bankruptcy, but you may want to talk to a bankruptcy protection lawyer such as Marty Martin Bankruptcy Law about them if you have a lot of money. Some states have a wildcard exemption, which lets you save something important to you that isn’t necessarily exempted.