Effect of Bankruptcy on Your Personal Property

The degree to which your personal property is effected by bankruptcy depends on what type of bankruptcy you file.  Personal property is most greatly effected in a Chapter 7 bankruptcy proceedings. 

The advantage of Chapter 7 is that is a relatively quick proceeding.  The disadvantage is that you have to use your assets, unless they are exempt from bankruptcy, in order to obtain a bankruptcy discharge. 

In order to decide whether Chapter 7 is a good option for you, it is important to understand what property is exempt from bankruptcy.

Types of Property that are Commonly Exempt in Bankruptcy

The Bankruptcy Code gives each state the authority to define which assets are exempt from bankruptcy.  Some common bankruptcy exemptions include:

• A portion of equity in your home
• Tools of the your trade or profession, up to a certain value
• A portion of unpaid but earned wages
• Public benefits, including public assistance (welfare), social security, and unemployment compensation, accumulated in a bank account
• Damages awarded for personal injuries
• Reasonably necessary clothing
• Reasonably necessary household goods and furnishings
• Household appliances
• Motor vehicles, up to a certain value
• Jewelry
• Pensions

Most states allow for these common bankruptcy exemptions, although the amount considered to be “reasonably necessary” and the maximum allowable value differs among the states.  These exemptions are meant to allow you to rebuild your life and to work after a bankruptcy has been discharged.  For example, you may keep a car during bankruptcy.  The law assumes that if you keep a car during bankruptcy then you can get to and from work.

Many debtors wonder about the effect of bankruptcy on joint property.  The effect of bankruptcy on joint property is simple – the bankruptcy court may only use your share of jointly owned property to satisfy your debts.

Getting Legal Help for Bankruptcy

If a debtor chooses to reaffirm debt during bankruptcy then that debt will not be discharged.  To reaffirm debt during bankruptcy means that the bankruptcy has had no effect on that particular loan and you are obligated to repay it.

A bankruptcy lawyer can help you understand which property is exempt and whether you should reaffirm debt during bankruptcy.  Therefore, it is important to consult a bankruptcy attorney if you are a debtor or creditor in a Chapter 7 proceeding.