Bankruptcy And Your Property

Of paramount concern to any debtor when filing for bankruptcy is what will become of his property. How property is disposed of by the Bankruptcy Court depends largely on what type of property is concerned and what type of bankruptcy is involved. When a debtor files for Chapter 7 bankruptcy, he will submit a list of property he wishes to keep and withhold from the bankruptcy estate. Such property is called an “exemption.” The types and amount of exemptions allowed vary according to federal and state law.

Real Estate

Homestead Exemptions

A homestead exemption is the amount of equity in the debtor’s primary residence that he is allowed to keep. The federal homestead exemption is $20,200 for bankruptcies filed after April 1, 2005. However, state homestead exemptions vary greatly. Though states may allow their citizens to use a State, rather than federal, homestead exemption, federal law dictates that a state homestead exemption cannot exceed $125,000 if the home was purchased during the 1,215 days leading up to the bankruptcy filing

Foreclosure

An automatic stay that goes into effect immediately upon the filing of a bankruptcy case can prevent the foreclosure on the debtor’s home. However, in a Chapter 7 case, if the debtor wishes to discharge his mortgage debt, he will not be able to stay in the home, as the collateral will revert to the bank as compensation. In a Chapter 13 cases, the automatic stay gives the debtor time to propose a payment plan for any mortgage amounts in arrears to the creditor and to begin making his regular mortgage payments in a timely manner.

Rent

Like a foreclosure, the automatic stay in a bankruptcy case can temporarily delay an eviction based on rent arrearages. However, the court will not force a landlord to continue to house a tenant who does not or cannot pay his rent. Eventually, the landlord will be allowed by the court to continue with eviction proceedings.

Vehicles

Like real property, vehicles are typically secured debts that are subject to repossession due to non-payment of the debt. 

In Chapter 7 Bankruptcy

However, in addition to stopping collection attempts by a creditor via automatic stay, a vehicle may also be claimed as an exemption in Chapter 7 bankruptcies. However, in order to claim a vehicle as an exemption, it must typically be an older model with only a few thousand dollars in equity.

In Chapter 13 Bankruptcy

A Chapter 13 bankruptcy also stops collection efforts by a creditor via automatic stay. Unlike a Chapter 7 bankruptcy, however, a debtor in a Chapter 13 bankruptcy will most likely retain his vehicle by repaying the creditor over a 3-5 year period as part of the payment program.

Personal Property

While debtors in Chapter 13 bankruptcies typically retain their property, debtors in Chapter 7 bankruptcies must claim their personal property as exemptions. Typically, debtors are allowed to keep the following personal property:

  • Household items
  • Clothing
  • Non-antique furniture
  • Books
  • Musical Instruments
  • Jewelry worth less than $1,000

Credit Cards

Debtors who owe money on credit cards must list the balance as a debt at the time they file for bankruptcy. While credit card debt is unsecured and therefore typically discharged in bankruptcy, credit card companies will usually only allow debtors to retain their credit cards after bankruptcy if the debtor agrees to reaffirm the debt on the card. If a debtor does not owe a balance on the credit card, he is not obligated to inform the credit card company of his bankruptcy filing. However, it is possible that the credit card company will find out about the bankruptcy and cancel the card anyway.

Property Worksheet

If you are concerned about what property you may be able to keep after filing for bankruptcy, filling out a bankruptcy worksheet can help you identify the property that is most valuable and important to you. During your initial consultation, a bankruptcy lawyer will provide a lengthy worksheet which details every asset and liability, and this will be submitted to the bankruptcy court.

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