What Property Will be Liquidated in Chapter 7 Bankruptcy?

Many people considering filing for chapter 7 bankruptcy are concerned about losing their personal property to the bankruptcy trustee. Fortunately, for the great majority of chapter 7 bankruptcy petitioners, they will get to keep all of their property.

Obviously, there are exceptions to this rule. The most common type of property that a bankruptcy may choose to liquidate include cars (beyond the exemption), cash and other readily convertible assets.

If a bankruptcy is properly planned ahead of time, many of these losses can be avoided, either by actively managing available exemptions, converting non-exempt assets, or electing to redeem the property or reaffirm some debt.

How to Keep Your Car

The most common type of property that may be liquidated is a car, or more likely, second or third cars outside of a primary vehicle.

First of all, in order for a trustee to get any cash value out of a car, it must be worth significantly more than any debt secured by it. That means, for someone who has financed a car recently, and the depreciation has made the car less valuable than the money owed for it, the trustee will not be able to get any equity out of it beyond what is owed, so it will not be liquidated.

If the car is not financed, or is worth more than the debt secured by it, then it has positive value for the trustee. Most states offer somewhere between $2,000 and $10,000 in exemption for this equity. If the exemption is enough, the car will not be sold.

If the car is worth more than the combined exemption value and outstanding debt on the car, then the petitioner would have to reaffirm the debt, which means he or she promises to repay the debt, as if it were not included in the bankruptcy.

Talk to an Attorney First

Anyone considering filing a bankruptcy case should always consult with an experienced bankruptcy attorney before doing anything else. In order to keep as much property and assets as possible, it’s important to have a professional work out a legal planning strategy that will work for the debtors situation.