What can I keep when filing bankruptcy?
One of the most common questions asked by bankruptcy filers is, “What can I keep if I file bankruptcy?” Unfortunately, this is not a simple question. Whether or not you can keep your house, car and other property will depend on your state, how long you have owned the property, your remaining balance on the property loan, your state bankruptcy exemption laws and whether or not you file Chapter 7 or Chapter 13 bankruptcy.
Can I keep my house if I file bankruptcy?
If you file Chapter 7 bankruptcy the court will seize your nonexempt assets and sell them to repay your creditors. If you have unsecured debts after the Chapter 7 discharge these debts are discharged. Whether or not your home is seized will depend on your state’s homestead exemption (which varies by state) and the amount of equity you have in your home. Some states limit how much equity you can protect from a bankruptcy through the homestead exemption. Other states have no limit on this amount.
If you file Chapter 13 bankruptcy you will submit a payment plan to the court which will include your house payment. The plan will be for three or five years. If the plan is accepted you will resume paying your mortgage payments and repay any payments which are in arrears. After the plan is complete, because the mortgage is considered a secured debt and is not discharged by bankruptcy, you must continue to make mortgage payments unless your home was paid off during the plan. Failure to make mortgage payments can result in a home foreclosure or seizure.
Can I keep other property when filing for bankruptcy?
As mentioned above, the property you can keep will depend on whether you are filing Chapter 7 or Chapter 13 bankruptcy and your state’s bankruptcy exemption laws. In Chapter 7 bankruptcy the trustee will sell property which is not considered nonexempt.
For example, if you file Chapter 7 bankruptcy and your car is worth $2,000 and the exemption for your state is $5,000, you would most likely get to keep your car. If, however, the car is worth $25,000 the bankruptcy trustee will sell your vehicle and use the money from the sale to pay the car loan creditor. You would be paid $5,000 for the bankruptcy exemption, and if there is money remaining, it would be used to repay other unsecured creditors.
In Chapter 13 bankruptcy, however, debt payments for secured assets may be restructured and paid and the bankruptcy exemptions are used to decide how much money you will have to pay to your unsecured creditors.