If you’re drowning in debt you can’t pay, the thought of starting over financially is a welcome one but you are most likely worried about your assets. Knowing if you’ll be able to keep your home, vehicles, and other assets is the first thing you’ll want to know before you decide to file for bankruptcy.
You could lose everything
For some reason many people believe that filing for bankruptcy causes you to lose everything you own. This is simply not true and is a common myth. The same law applies to everyone concerning certain aspects of bankruptcy, no matter how deep in debt you may be. Laws make provisions for people in debt to keep certain assets necessary for basic living and starting over financially. You simply will not lose everything you own.
Exemptions do vary
Exemptions do vary from state-to-state and this is why it’s best to speak with a bankruptcy attorney before leaping to any conclusions about your assets. Considering your home as an exemption, your home’s equity would be the exemption amount. The exemption would be applied only to the equity. If you have no equity in your home then you don’t have to claim it exempt in bankruptcy proceedings because there is no monetary value for creditors to collect against.
Property of the bankruptcy estate
This is essential to understand when you are filing bankruptcy. Property of the bankruptcy estate can include anything that creditors could legally have a claim to, even what you have claimed as exempt, until the exemption claims are finalized. If an asset is not property of the estate then you don’t have to protect it from creditors by claiming it exempt. Using your home as an example,
- You claim exemption because you have $100,000 dollars equity in your home.
- You still owe $250,000 dollars on your home.
- It would not be worth the cost to creditors to take possession of your home, pay selling and closing costs, and then distribute whatever might be left to multiple creditors.
- While your home exemption is considered property of the bankruptcy estate until exemptions are finalized; a bankruptcy attorney will explain to you that in most cases you will not lose your home. If you have multiple properties this may not be the case and may only apply to your legal residence.
Assets such as vehicles and tax returns
If you have three luxury sports cars in the garage, you may not be able to claim all of them exempt, but for the average person, your vehicle will be considered an exemption. You need your vehicle for basic day-to-day living. Items like tax returns, stock options, and even intellectual property may not be exempt in some circumstances. It’s important to be honest and forthcoming about all assets to your attorney so that you can protect your assets to the full extent of the law.
Chapter 13 and Chapter 7 bankruptcy
If you are the person with three sports cars in the garage, you likely have more assets than you can claim exemption status for. In this case, you can still keep all or most of your property by filing a Chapter 13 bankruptcy and paying your creditors over an agreed period of time. If your only assets are your home and vehicle, possibly a retirement plan, and your children’s college fund, you would most likely do better filing a Chapter 7 bankruptcy.
What assets you will be able to keep depends entirely on what assets you have in comparison to your debt, the amount of allowable exemptions in your state, and whether you decide to file a Chapter 7 or Chapter 13 bankruptcy. In most cases your home, vehicles, and retirement savings are not going to be lost. Before making a move towards filing for bankruptcy it’s best to contact a knowledgeable bankruptcy attorney, such as Smith, Dickey, Dempster, in your area.