The mere idea of bankruptcy is so frightening to so many people that they often delay the process and go deeper and deeper into debt. Though many avoid filing because they are embarrassed or believe that it is an admission of failure, most people say their biggest fear is losing all of their possessions. The truth is that even in a liquidation bankruptcy, most people end up keeping everything that they own.
People think that they know about bankruptcy, what it is, and what it does, but what they think they know is often based on rumor and misunderstanding. Here’s what you need to know about types of bankruptcy, as well as what assets you can keep when you file.
The first thing you need to understand is that there are two main types of personal bankruptcy, and the type that applies to you will depend upon your income. You only qualify for Chapter 7 – or liquidation – bankruptcy if your monthly income over the last six months is less than the median income in your state. If your income is above that level then you are required to file under Chapter 13 bankruptcy – in which case you will not need to forfeit any assets at all. Rather than being discharged, your debts will be reorganized to make it more feasible for you to pay.
If you do qualify for Chapter 7 bankruptcy, it is true that the bankruptcy trustee will require a list of your assets, and has the ability to sell some in order to pay off some or all of your debts. But there are exemptions available that you can use to protect certain assets. You will need to choose whether to use federal exemptions or those offered by your state, but in both cases the bankruptcy rules are meant to help people get back on their feet. They are not meant to be punitive, and as a result the goal is not to sell the things that you need to continue working or taking care of yourself and your family. While property that is generally not exempted includes things like a second home, a second car (unless you are filing jointly), investments other than retirement accounts, valuable jewelry, art, and luxury clothing, the assets that are exempt and that you can keep generally include the tools you need to do your job, the vehicle in which you get to work or to the store or to doctors’ appointments, your furniture, appliances, and even your home. You will also be able to keep veterans’ and unemployment benefits, Social Security benefits, life insurance, and other similar items.
For specifics on how filing for bankruptcy will affect you, contact our experienced bankruptcy attorneys today to set up a time for us to talk.
