Filing for bankruptcy is a huge step in anybody’s life. It represents a fresh start and the ability to escape from debt, but there are significant tradeoffs, especially for those who file for a Chapter 7 bankruptcy. Also referred to as a liquidation bankruptcy, debtors who qualify for Chapter 7 because their income cannot support their living expenses and their debt are at risk of having to relinquish some of their possessions and have them sold off to satisfy the debts that they’ve accrued. Though giving up luxury possessions may be acceptable, there are other assets that people feel strongly about holding onto. Fortunately, there are ways to protect certain assets through the bankruptcy process.
There are several factors involved in protecting assets, and it’s important to have legal guidance to help you understand the options available to you. Exemptions exist for certain types and valuations of property, but these exemptions vary by where you live and whether you elect to use your state’s rules or federal rules, but in most cases, they can be applied to your primary residence, your clothing, and household items, and your retirement accounts. Protecting your home is a complicated calculation that considers the equity you currently hold. By contrast, your 401(k) and IRA accounts are completely protected, and so too are tools and other items — usually including your vehicle — that you need to consider.
Another way to protect your assets is by choosing a Chapter 13 bankruptcy rather than a Chapter 7 bankruptcy. Because Chapter 13 involves reorganizing your debts and paying them off in a defined period rather than discharging them, you significantly lower your risk of having to sacrifice the assets that are important to you.
An experienced bankruptcy attorney will be one of your most valuable sources of information before filing for bankruptcy. They will help you understand what assets are exempt and which are non-exempt. In preparation for that meeting, it’s a good idea to gather all of your financial records. As a note of caution, be aware that attempting to transfer assets out of your name to protect them will be scrutinized and potentially viewed as an attempt to defraud the system. Be sure to speak to a legal expert about the best ways to protect your belongings, and what you need to stay away from. Contact us today for more information.
