Bankruptcy Assets
What Happens To Your Assets
No one likes the idea of bankruptcy, and many are embarrassed to even be considering it. However, in many situations, avoiding personal bankruptcy isn’t the best way to go. If you find yourself overwhelmed with excessive credit card debt or other kinds of debt, you’re probably considering filing. However, you may be worried about what will happen to your assets. The answer depends on what kind of bankruptcy you file.
What Chapter 7 Means To Your Assets
Chapter seven bankruptcy is the kind that most people think about. The goal of chapter seven is to eliminate your debts completely. The bad news is that you may have to liquidate certain assets in order to pay your creditors as much as possible. Of course, if you’ve reached this stage in your financial life, you probably don’t have many assets to speak of. In fact, 95% of chapter seven cases are considered non-asset cases, which means that the individual filing doesn’t have anything to sell.
…And Chapter 13
The other main type of bankruptcy, by the way, is called chapter 13. This is designed to create a payment plan so you can pay off your creditors in three to five years. In this plan, you don’t have to worry about liquidating any of your assets (if you have any at all). Also, in most cases you end up paying your creditors less than the total amount that you owed.
Exemptions
So as you can see, your assets are vulnerable in chapter seven bankruptcy. However, there are some protections for your most valuable assets, namely your house and your car. Most states have a homestead exemption, which protects your home from creditors. This keeps credit card companies, for example, from going after the equity in your house. There is also a modest allowance for a car, but you may have to sell that Lexus sitting in your driveway!
You should know that there is a limit, though, on your homestead protection. This limit varies from state to state. It’s definitely good news that your house will usually be protected from unsecured debts like credit card debt. But that’s not the end of the story, of course. You still have to pay your mortgage to keep your house, and if you’re struggling enough to consider bankruptcy then you may be in danger of foreclosure.