Keeping All that You Own in Bankruptcy

Posted by Kevin on June 20, 2017 under Bankruptcy Blog | Be the First to Comment

Can you really keep everything you own if you file bankruptcy?  The Answer: Usually Yes.

Some basics. 

There are two basic types of consumer bankruptcies.  Chapter 7  is an asset based approach.  The Chapter 7 trustee sells your “non-exempt” property and pays your creditors.  Chapter 13 is an income based approach where you generally keep your assets but have to make payments to your creditors over a 36-60 month period.

There are two types of creditors:  secured creditors (they took collateral as a condition of granting you credit, and can look to the collateral to be paid even after the bankruptcy), and unsecured creditors (basically no collateral).

The purpose of bankruptcy is to give an honest debtor a fresh start.  That means that most, if not all,  of your debts are discharged, and you can keep all or most of your property.

Now how is that accomplished.

In a Chapter 13, as stated above, you keep the property you want to keep in exchange for making payments over the term of 36-60 months.

In a Chapter 7 “straight bankruptcy,” your debts are discharged—legally written off forever—in return for you giving your unprotected assets to your creditors (as represented by the bankruptcy trustee). But here is the good part: for most people, all or most of their assets ARE protected, or “exempt.” from the trustee and your creditors.  Why?  The fresh start.

Property Exemptions- The Basics

• The Bankruptcy Code has a set of federal exemptions, and each state also has its own exemptions. In some states you have a choice between using the federal exemptions or the state exemptions, while in other states you are only permitted to use the state exemptions.  In New Jersey, we can use either.   In many states, choosing which of the two exemption schemes is better for you is often not clear.  However,  in New Jersey, debtors generally use the federal exemptions.  Why?  Because many of the New Jersey exemptions were created by statute about 100 year ago or more, and were not adjusted for inflation.  Moreover, New Jersey has no homestead exemption.
• If you have moved relatively recently from another state, you may have to use the exemption rules of your prior state. Because different state’s exemption types and amounts can differ widely, thousands of dollars can be at stake depending on when your bankruptcy case is filed.
• In some circumstances, it is not clear how the federal exemptions will be applied.  What if you own a car and you owe $10,000 on your car loan.   Clearly, the bank (secured lender) has an interest as do you.  But, the trustee also may be able to make a claim to part of the value to the car, and sell it.

Navigating through exemptions can be much more complicated than it looks, and is one of the most important services provided by your bankruptcy attorney.  It can maximize the amount of property you keep after receiving your bankruptcy discharge.