The most common fear in filing a chapter 7 bankruptcy is that all property and assets will be lost during the bankruptcy proceedings. Although property is sold then proceeds are used to repay debts within a chapter 7 bankruptcy, there are ways to protect many items from sale and repossession. Exceptions vary from state to state, but most states allow individuals filing bankruptcy to keep their residence in most cases assuming its asset value, the difference between the home’s value and the amount owed to lenders, is not significantly high. The other largest concern of individuals filing is retaining their car following bankruptcy, assuming the asset value of a car does not exceed the sates exemption threshold, vehicles can be made exempt from seizure and sale.
The assets which are most important to long term wealth; pensions, structured payments, unemployment, life insurance, child support, and insurance benefits are usually exempt from all chapter 7 proceedings. Exempted items cannot be seized by creditors in the future to collect upon debts discharged within a bankruptcy and will not be sold within the execution of a bankruptcy filing. Filing items as exemptions within a chapter 7 bankruptcy application is often the only way for individuals to protect their property from being repossessed by creditors or lost in the process of a forced bankruptcy. Therefore, a debtor filed chapter 7 can do more to protect an individual’s assets than the continued cycle of making late payments and struggling to make ends meet.
In other forms of bankruptcy, such as chapter 13’s, the idea of exemptions is irrelevant since no property is actually sold or repossessed during bankruptcy proceedings. All payments are restructured within a chapter 13 and most pieces of property are protected from repossession. As with chapter 7 filings, chapter 13’s cannot discharge all forms of debt. Pieces of property, such as a home, with a long term structured loan cannot be discharged through bankruptcy. Any non-dischargeable debts that exist on homes or other exempted property need to be paid during and following a bankruptcy, so in some cases claiming specific items as exemptions to a bankruptcy may not be in an individual’s best interest.
It is often necessary to consult a qualified bankruptcy attorney to fully understand exemption options as well as the benefits and liabilities of claiming property as exempt. If you are considering bankruptcy and need to know more about your options, contact us at the Norton Law Offices to speak with one of our experienced bankruptcy attorneys today.