Filing for bankruptcy can be a difficult decision, but for many individuals, it provides much-needed relief from overwhelming debt. One of the biggest concerns people have when considering bankruptcy is what will happen to their assets. While bankruptcy does involve liquidating or restructuring debt, not all assets are lost. The outcome depends on the type of bankruptcy you file, the value of your property, and the exemptions available under state and federal law.
Understanding the Different Types of Bankruptcy
The two most common types of personal bankruptcy are Chapter 7 and Chapter 13. Each treats assets differently, and knowing the distinction is key to understanding what you may keep or lose.
Chapter 7 Bankruptcy: Liquidation Bankruptcy
- In Chapter 7, a court-appointed trustee reviews your assets and sells non-exempt property to pay off creditors.
- Certain assets are protected by exemptions, meaning they cannot be taken to satisfy debts.
- The process typically lasts a few months, after which remaining eligible debts are discharged.
Chapter 13 Bankruptcy: Repayment Plan
- Chapter 13 allows individuals to keep their assets while repaying debts through a court-approved plan over three to five years.
- Instead of liquidating assets, you make structured payments based on your income and financial situation.
- This option is ideal for those who want to keep their home, car, and other valuable property.
Whether you file Chapter 7 or Chapter 13 will significantly impact how your assets are handled.
What Happens to Your Home in Bankruptcy?
For homeowners, filing for bankruptcy can be particularly stressful. Whether you can keep your home depends on your equity, exemptions, and whether you are current on mortgage payments.
How Bankruptcy Affects Homeownership
- Chapter 7: If you have significant home equity that is not covered by exemptions, the trustee may sell your home to repay creditors. If your equity is fully protected, you may be able to keep your home.
- Chapter 13: As long as you continue making mortgage payments, you can typically keep your home. Chapter 13 can also help you catch up on past-due payments by restructuring your debt.
A bankruptcy attorney can help determine if your home is at risk and how exemptions may protect it.
Will You Lose Your Car in Bankruptcy?
For many individuals, keeping a vehicle is essential for work and daily life. Whether you can keep your car depends on its value, outstanding loan balance, and available exemptions.
Car Ownership in Bankruptcy
- Chapter 7: If your car is fully paid off and its value falls within exemption limits, you can keep it. However, if it is worth significantly more, the trustee may sell it to pay creditors. If you are behind on loan payments, the lender may repossess the car unless you reaffirm the loan.
- Chapter 13: You can keep your car as long as you include loan payments in your repayment plan. Chapter 13 may even reduce your monthly payments by modifying the loan terms in some cases.
Are Personal Belongings and Bank Accounts at Risk?
Many people worry about losing personal possessions and savings when filing for bankruptcy. While some assets may be liquidated, most individuals can keep basic necessities.
Exempt vs. Non-Exempt Assets
- Exempt Property: Includes clothing, furniture, appliances, tools of the trade, and certain retirement accounts. These items are protected under bankruptcy exemptions.
- Non-Exempt Property: Includes valuable collections, expensive jewelry, second homes, or non-essential vehicles. These may be sold in Chapter 7 to repay creditors.
State and federal laws provide exemption protections that allow you to keep essential assets while discharging unsecured debts.
What Happens to Retirement Accounts and Investments?
Most retirement accounts, such as 401(k)s, IRAs, and pensions, are protected in bankruptcy. However, investments, savings accounts, and other financial assets may be affected.
How Bankruptcy Affects Financial Accounts
- Retirement Funds: Protected under federal law, meaning creditors cannot access them.
- Bank Accounts: Cash in checking and savings accounts above exemption limits may be used to repay debts.
- Stocks and Investments: Non-retirement investment accounts are typically considered non-exempt and may be liquidated in Chapter 7.
A bankruptcy attorney can help assess which assets may be at risk and how best to protect them.
How an Attorney Can Help Protect Your Assets
Bankruptcy laws are complex, and navigating exemptions and asset protection requires careful legal planning. An experienced attorney can:
- Determine which bankruptcy option is best for you
- Help protect your home, car, and personal property using exemptions
- Negotiate repayment terms to prevent asset liquidation
- Ensure your filing is handled correctly to maximize debt relief
If you are considering bankruptcy and need guidance on protecting your assets, contact Law Offices of Terrence Fantauzzi at (909) 552-1238 today for expert legal advice tailored to your financial situation.