What Property is Kept After Bankruptcy?

The bankruptcy process is generally called filing for bankruptcy “protection” because the American justice system provides this means to protect the essential property of those who have fallen on difficult financial times.  While creditors may be ready to repossess, foreclose, or file lawsuits to collect monies owed, a bankruptcy filing puts a stay on those actions until the bankruptcy plan is negotiated and is put into motion. 

The result is that many types of property can be kept by the petitioner, depending on their financial circumstances and the applicable state and federal laws.  However, many consumers will not know the full scope of the protections provided by a bankruptcy petition without the help of an expert, usually a bankruptcy attorney.

Chapter 7 Exemptions

One of the most common types of bankruptcy is chapter 7, which is considered a form of property liquidation and debt discharge.  However, various state and federal laws provide some types and values of exempt property which the debtor can protect and retain throughout this process, often, but not always, including:

• Homestead or primary residence property
• Vehicles
• Tools of the trade
• Personal property, such as clothing, furnishings, household goods, health aids, some jewelry, some family pictures and heirlooms, and in some cases, burial plots
• Some wages
• Pensions
• Public benefits
• Alimony and/or child support received
• Various types of recoveries or awards that are necessary for the debtor
• Insurance benefits

It is important to consult a bankruptcy lawyer to learn the laws governing these exemptions in each state, as they can differ widely.  Many debtors may find that they have little, if any, assets to be liquidated.  Such “no asset” bankruptcies make chapter 7 a wise choice in many circumstances.

Reaffirming Debts

In addition, while some secured loans are exempt up to certain values, lien holders may still be able to repossess the property securing those loans unless the debtor "reaffirms" their intention to make renegotiated payments on the property.

Chapter 13 Reorganization

Another common form of bankruptcy is chapter 13 reorganization.  As in a chapter 7 petition, the moment this form of bankruptcy is filed, there is a “stay” put on all actions by creditors.  Then the debtor, their attorney, the bankruptcy trustee, and the creditors negotiate priorities of loans to be repaid, possible reduced amounts, and extended periods over which to pay them.  In some cases, those negotiations may result in the elimination of some or all interest amounts, as well as reduced principal amounts.

The debtor’s property is protected as long as they continue to make the agreed-upon payments on time.  If they fail to do so, creditors may take action.

Know How to File

Knowing whether to file for bankruptcy and which type is appropriate can be difficult for someone not well-versed in bankruptcy laws.  However, bankruptcy lawyers have both the legal and financial know-how to advise their clients in these important matters and help them truly get back on their financial feet as soon as legally possible.

Talk to a Bankruptcy Lawyer to find out if bankruptcy will work well for your situation vs other options for dealing with debt.