Your Property and Bankruptcy
Most people are resigned to the fact that during bankruptcy, they will lose everything. In fact, the fear of losing everything is what prevents many people from filing for bankruptcy, even though they desperately need to. If you are considering declaring bankruptcy or have already done so, you should know the truth about what happens to your property during bankruptcy. Usually, nothing actually happens to it.
Exempt Property from Bankruptcy
The federal government, which is the body in charge of bankruptcy, does not want to leave anyone without a shirt on his or her back. They have taken reasonable steps to exempt a certain amount of personal property so that an individual can start fresh following a bankruptcy without undue hardship.
Therefore you do not need to worry about losing everything. Most of your personal belongings are safe, with the exception of certain high-ticket items. Your car, up to a certain value, is exempt. If your car happens to be worth more that the exempt amount and you own it outright, you can “buy it back” by making payments to the trustee. If you happen to have tools of your trade, they are exempt. Your home is exempt, or at least partly exempt, depending on the state you live in.
Your Property and Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also referred to as liquidation bankruptcy. In theory, you are supposed to turn over items of value to the bankruptcy trustee in order for them to be liquidated and the proceeds distributed. However, in reality most people who file for chapter 7 have no assets to liquidate. In this case debts are discharged and nothing is taken or sold off.
Your Property and Chapter 13 Bankruptcy
If you are filing chapter 13 bankruptcy, it is in all likelihood because you have gotten behind on payments but still want to catch up and keep the items in question. This is the type of bankruptcy most often filed by those who have a steady income and some luxury goods that could be liquidated for cash. Often in chapter 13, secured loans are modified to make them more affordable and a plan to repay the amount in arrears is created. For many unsecured debts, a plan to reimburse a portion of the debt ensures that the creditor gets at least as much as he or she would if the debtor were to file chapter 7 bankruptcy. However, actual amounts repaid on unsecured debts are typically a very small proportion of the original amount.
Concealing Your Property and Bankruptcy Laws
It is illegal to conceal property from a bankruptcy court. It could not only affect your case and discharge, it could result in charges being brought against you. Therefore, you need to put aside any temptation to do so and be completely honest in listing all your assets. If you remember something you had inadvertently omitted after the documents have been filed, tell your lawyer who can make an adjustment to your paperwork.
Bankruptcy in real life is very different than how it is portrayed in movies and on TV. People who opt to go this route to deal with out-of-control finances can actually continue on their day to day existence as if nothing had happened, except now they have very few debts to pay. Understanding how your property and bankruptcy laws affect each other can help you decide if declaring bankruptcy can help you in the long run.
