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Which Of My Assets Do I Get To Keep If I File Bankruptcy?

Which Of My Assets Do I Get To Keep If I File Bankruptcy?

By Joshua Cardozo

There are many important questions you should ask your lawyer before making the final decision to declare bankruptcy. One of the most important questions to consider is what will happen to your assets if you declare bankruptcy. The answer depends on which kind of bankruptcy you end up filing.

In a Chapter 7 proceeding, you are looking to get rid of your debts in exchange for liquidating certain nonexempt assets. Your most important assets, like your primary residence and your vehicle, are usually protected up to a certain value by your state's laws.

Since people who declare bankruptcy are by definition under severe hardship, they usually do not have many assets to liquidate. If you happen to own a home free and clear (or if you have significant equity), this will usually be protected because these assets are considered exempt under Chapter 7 bankruptcy laws.

Do you get to keep your household items like furniture? What about common appliances like stoves, microwaves, and laundry machines? Well, normally these kinds of items are also considered exempt as long as they are not extravagant and worth a great deal of money.

Keep in mind that other kinds of assets are also considered. Have you received any kind of insurance benefit or inheritance recently? If so, you need to tell your lawyer because this kind of item may also be up for grabs during a bankruptcy liquidation.

On the other hand, if you file for a Chapter 13 petition, you would not have to surrender your assets because you are committing to a partial repayment plan. Under this agreement, you would end up making monthly payments over the next 3 to 5 years, although the good news is that you would only end up paying a small percentage of your original debt.

Chapter 13 is very useful if you wish to keep certain assets that would have been lost under Chapter 7 bankruptcy, such as an investment property or similar asset. Such a repayment plan also helps you catch up on your mortgage payments for your primary residence, and this is important because Chapter 7 would do nothing to protect you from the mortgage company itself if you got behind on your payments.

One important consideration for Chapter 13 is that the amount you agree to pay has to be at least equal to the sales value of the asset you are trying to protect. For example, let's say you own a $50,000 property that you would have to surrender under Chapter 7. If you chose a repayment plan instead, you would have to pay a total of at least $50,000 over the next few years so your creditors do not get the short end of the deal.