Can you keep property in bankruptcy? If you are afraid to file Chapter 13 or Chapter 7 Bankruptcy because you are worried about losing your property, then read on.
Keep Property In Bankruptcy?
One of the first things that pop into people’s minds when contemplating filing bankruptcy is whether they can keep property in bankruptcy or if they will lose all of their assets, such as their car, house and other property.
The short answer is probably not. I’ve actually never had a client lose property in a bankruptcy that they didn’t want to surrender in the first place. Let me explain. There are two basic types of property: 1. Exempt property and 2. Non-Exempt property.
Exempt property is, generally speaking, stuff you get to keep. For instance, one car per filer, one house, your clothes, jewelry, appliances, furniture, the Earned Income Credit portion of your tax refund, retirement accounts like 401(k), 403(b), KPERS, FERS, etc. This covers nearly 99% of the assets of my clients, meaning, there is virtually no risk to losing personal or real property in a Chapter 7 or Chapter 13 Bankruptcy.
You have to keep in mind that the bankruptcy code was not written to punish a debtor. It’s purpose is to give the honest, but unfortunate debtor an opportunity to start over. It would be fundamentally unfair if debtors were required to surrender all of their assets to become debt free.
Non-exempt property is the opposite of exempt property. This type of property is not protected in a bankruptcy and can be liquidated, or sold to pay back general unsecured creditors. Examples of non-exempt property are jet skis, boats, trailers, motorcycles not used as primary transportation, dirt bikes, 4 wheelers / quads, extra vehicles beyond the one-per-filer, second houses, timeshares, etc…
So does this mean you will lose your non-exempt property?
Not necessarily. In a Chapter 13 Bankruptcy, you actually have 3 – 5 years to repurchase a non-exempt asset, so the risk is minimal. The biggest problem is whether the property is necessary for an effective reorganization without prejudicing other creditors. In a Chapter 7 Bankruptcy, the Chapter 7 Trustee will give you an opportunity to buy back a non-exempt asset, and will usually give you a certain time frame to do so.
For instance, let’s assume you have a third vehicle – a 2002 Honda Civic that your 17 year old child drives to school and to their after work job. The value of the Honda Civic is about $1,000.
The Chapter 7 Trustee could auction the vehicle off and use whatever proceeds from the auction to pay back your creditors OR… the Chapter 7 Trustee may just allow you to set up a payment plan to repurchase the vehicle – for instance – $100/mo over 10 months.
Think of it from the Trustee’s perspective. Which is easier? Taking possession of your vehicle, storing it somewhere, paying an auctioneer a fee, then hoping that the vehicle actually sells for anywhere near what it’s worth… OR, simply setting up a payment plan with the debtor which eliminates a all the time and energy into auctioning a car off. You guessed it. The Trustee is probably going to take payments.
To recap – if you are afraid to file Chapter 13 or Chapter 7 Bankruptcy simply because you are worried about losing your property, speak to a Bankruptcy Attorney to understand why, in most cases, you can keep property in bankruptcy.
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