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Bankruptcy: What can I keep?

One of the things I try to do in my blog is answer questions that people ask me on almost a daily basis. One of those that I haven’t addressed yet involves bankruptcy and specifically Chapter 7. You may remember from an earlier post that all your debts are discharged in a Chapter 7 Bankruptcy. In other words, you won’t owe them anymore.

The question I get from so many people is, “Can I keep my car and can I keep my house?” The answer is Yes! If you have a car loan, you can keep your car and re-affirm the debt/loan. Once your Bankruptcy is discharged, your loan servicer will send you papers to Re-affirm your debt. Basically an agreement where you agree to continue paying on the loan.

If you own your car, it is exempt and you can keep it. By Exempt, I mean that you won’t have to sell it to pay off your debts. You can be in a Chapter 7; but let’s say you have three cars and two of them are collector’s items and classics. The Bankruptcy court may force you to sell those to pay off some or all of your debt. You will be able to keep at least one car. If you have multiple family members they can usually keep their car too.

You can also keep your home. Not a vacation home; but your primary residence. That’s if you want to keep it. You can walk away from it too. It used to be that everybody would just “stay and pay”, meaning that you just continue to make your mortgage payments after the bankruptcy. Nowadays it is a good idea to consider asking your mortgage company to re-affirm your mortgage after the bankruptcy. There are good and bad results from this.

The good is that you can qualify for a Mortgage Modification later if your debt is re-affirmed. Further, you eliminate some troubles when you are ready to sell the home. The downside of re-affirming your mortgage after a Bankruptcy is that you can’t walk away from it later if you get into financial trouble. So that is a personal preference/balance that each debtor has to decide on his/her own. Next time I am going to to into more detail about exempt property and what you can keep and have to get rid of during a bankruptcy.

Part II For Bankruptcy: What can I keep?

Last time I explained that you could keep your car and home in Bankruptcy, if you want, and depending on the type of Bankruptcy you file; but what other property can you keep? This is an important question because many people don’t realize that it’s a common situation for the Bankruptcy Trustee to force the sale of assets to pay creditors. For simplicity we are going to cover just a little about Federal Exemptions as opposed to State Exemptions.

You can exempt household goods such as furniture, clothing, appliances, and the like. The aggregate value that can be exempt is $10,775. Jewelry can be exempt up to $1350 as long as it is held for personal and family use. There is also a “wild card” or “any property” exemption. This is an additional $1,075 for property not already covered/exempt. There is another $2,025 exemption for “tools of trade”.

You can also keep most Life Insurance policies as long as they don’t have a cash value. Life insurance policies, which do have a cash value get complicated; but generally can be exempt up to the cash value of $10,775.

Many people have expensive health aids like wheel chairs/scooters, artificial limbs, even specially equipped vehicles. These can all be exempt and although there are gray areas, if it qualifies there is no dollar limit.

There are also exemptions for all kinds or retirement benefits and other rights to future income. This gets complicated and is too extensive for this blog entry. As you can see there is a lot to consider when filing a Bankruptcy. If you have further/specific questions contact us! Consultations are free.

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