One of the common questions most filers asked is, what can you keep when you file for bankruptcy? The court can be complicated in regards to the exempt and nonexempt property. In a bankruptcy filing, exempt assets are the ones you can keep. Generally, it consists of a car, home and other kinds of possessions depending on the type of bankruptcy you are going to file either chapter 7 or chapter 13.
Nonexempt assets cannot be kept unless you file for chapter 13 where it allows an individual to have the opportunity to pay back the debt within 3 to 5 years. Nonexempt assets differ in value. Those valuable properties like mortgage and car payment, you are likely to keep most of them.
Going for bankruptcy is never an easy decision especially when you think about your pride. As a matter of fact, there is about 2 million Americans file for bankruptcy. According to some survey, most people would choose to declare bankruptcy if they are unable to pay off debts. In this way, many people still believe that there is life after bankruptcy. Good thing in today’s bankruptcy court, it allows you to keep certain properties even after you have filed.
Things to Consider When Filing for Bankruptcy
In today’s bankruptcy law, you need to consider the following steps to officially declare bankruptcy.
- Decide which bankruptcy type you are going to file—There are 2 kinds of bankruptcy. Chapter 7 is where your properties are sold to pay off creditors while chapter 13 is where you can make a repayment plan with interest. You must decide which one to apply. Also, your qualification for each will depend on your reported income.
- Credit Counseling – The bankruptcy court requires a person to arrange a credit counseling course with a licensed counselor for the bankruptcy filing to be legal.
- Meeting with creditors – For almost kind of personal bankruptcy, a person needs to attend a creditor’s meeting which is known as 341 meeting. It is created for you to meet directly with the creditor so you can answer in regards to the questions about your debts and properties. 341 meeting usually happens 20 to 40 days after filing.
What Can You Keep When You File for Bankruptcy?
Before you file, it is important that you make sure to familiarize yourself with state laws so you can determine which assets and properties are exempt or non-exempt. Let’s discuss further the 2 common types of bankruptcy and classify the rules in regards to the assets that you can keep.
For chapter 7
In all cases, the bankruptcy trustee is in charge of your current existing assets and authorize cash value to each one of them. From this point, your assets will be divided among your creditors. All cases in chapter 7 don’t necessary consists of nonexempt properties. This means that all assets you have can be sold off which is also known as no asset cases. It is usually closed within 4 months after filing. Although, those asset cases tend to close for about 2 to 4 years after a bankruptcy filing.
The rules also vary state by state. In Florida, they are allowed to keep properties on luxury items such as homes and cars. Other states grant you to keep the following properties even after you have filed for bankruptcy.
1. Unlimited amount of equity in your home – If your home is worth million dollars and you only have thousands of dollars left on the mortgage payment, the remaining amount that you have already paid can be yours legally as long as you can verify that it is your main residence.
2. A car that is less than $6600 – You are allowed to keep 2 cars if both of them is worth $6600 when combined. You can continue to lease more than 1 car if you are able to pay the monthly payments.
3. IRA contributions unlimited – As long as you can verify that your account is legal IRA and not a money market account or savings, you are able to keep it.
Passport – If you wish to go overseas, you may need a written permission from the bankruptcy court.
For Chapter 13
Chapter 13 is also known as the reorganization plan and you may be able to keep the following assets such as:
- Any stocks you currently have
- Other personal things not more than $1,000 worth of value
Since chapter 13 is a repayment plan, you can keep these items based on your income. It’s like a give and take method while the court authorizes you to get control of your finances.
Declaring bankruptcy is a settlement wherein you can eliminate debts while allowing you to keep your properties. It is true that there is life after bankruptcy. Take this opportunity and get a fresh start.