Will I Lose My Property If I File for Bankruptcy? Nope!
In most cases, Chapter 7 bankruptcy filers keep everything they own with the added benefit of becoming debt-free.
Simply put, you will not lose your property if file for bankruptcy under Chapter 7. Sound too good to be true? Read on -
Get Debt Relief and a Fresh Start
Individuals, including married and civil union partners, file Chapter 7 bankruptcies to get out of debt and start fresh. Starting over with nothing would hardly be starting fresh - it would be a disaster.
To solve that problem, the Bankruptcy Code has a provision for exempting real and personal property from the pool of assets available to your creditors.
What Are Bankruptcy Exemptions?
Bankruptcy exemptions are specific laws, based on the Bankruptcy Code or state law, that prevent the bankruptcy trustee from using certain property you own to pay your creditors. Simply put, if your property is exempt, you keep it, and your creditors can't have it. The exemption statute is 11 U.S.C. §522.
To protect your exempt property, you have to itemize it on Bankruptcy Schedule C. If you claim no exemptions or list your property incorrectly, you may lose the exemption. If potentially exempt property is not claimed, the Chapter 7 bankruptcy trustee can take and liquidate your property. The trustee will use the money gained from selling your property to pay your creditors. A skilled bankruptcy attorney will assist you in determining what exemptions are allowed for your situation.
The list below describes the property and dollar amounts for the federal Bankruptcy Code exemptions. The exemption amounts are adjusted periodically to reflect changes in the cost of living. Therefore, bankruptcy filers must confirm they are using the most current bankruptcy exemption schedule before filing. The federal bankruptcy exemptions will adjust on April 1, 2022.
Homestead
522(d)(1), (5) - Real property, including mobile homes and co-ops, or burial plots up to $25,150. The unused portion of the homestead exemption up to $12,575 can be used for other property.
Personal Property
522(d)(2) - Motor vehicles up to $4,000.
522(d)(3) - Animals, crops, clothing, appliances and furnishings, books, household goods, and musical instruments up to $625 per item, and up to $13,400 in total.
522(d)(4) - Jewelry up to $1,700.
522(d)(9) - Health aids.
522(d)(11)(B) - Wrongful death settlements or verdicts for a person you depended upon.
522(d)(11)(D) - Personal injury settlements or verdicts up to $25,150 except for pain and suffering or financial loss.
522(d)(11)(E) - Lost earnings payments.
Pensions
522(b)(3)(C) - Tax-exempt retirement accounts (including 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans).
522(b)(3)(C)(n) - IRAS and Roth IRAs to $1,362,800.
Public Benefits
522(d)(10)(A) - Public assistance, Social Security, Veteran's benefits, Unemployment Compensation.
522(d)(11)(A) - Crime victim's compensation.
Tools of Trade
522(d)(6) - Implements, books, and tools of the trade, up to $2,525.
Alimony and Child Support
522(d)(10)(D) - Alimony and child support needed for support.
Insurance
522(d)(7) - Unmatured life insurance except for credit insurance.
522(d)(8) - Life insurance policy with loan value up to $13,400.
522(d)(10)( C ) - Disability, unemployment, or illness benefits.
522(d)(11)( C ) - Life insurance payments for a person you depended on, which you need for support.
Wildcard
522(d)(5) - $1,325 of any property, and the unused portion of homestead exemption up to $12,575.*
Your attorney will help you complete Bankruptcy Schedule C to ensure you claim your exemptions correctly.
Who Can Claim Bankruptcy Exemptions?
Only individuals can claim exemptions when filing bankruptcy. The exemptions are not available to businesses that file Chapter 7.
When married or civil union couples file a joint bankruptcy, each spouse can claim the property they own, and the exemption amounts may be combined for joint property.
What Happens to Non-Exempt Property?
Property not covered by a bankruptcy exemption is non-exempt. That means the trustee can take it to pay your creditors. Your attorney will negotiate with the trustee to settle disputes about the value of your non-exempt property and the amount remitted to an unsecured creditor.
If your property is exempt, but the exemption is less than the value of the property, the trustee will pay you the exemption amount before taking the property. In some cases, the trustee may allow you to "purchase" the non-exempt equity in your property. For example, if your car is worth $5,000 and your exemption amount is $3,500, you can pay $1,500 to buy and retain your vehicle. Your attorney will advise you whether to purchase a non-exempt asset.
What Happens to My Home Mortgage and Car Loan?
Secured creditors with an interest in your property retain their claims. That means your mortgage lender can still foreclose on your home if you are behind on your mortgage payments. And, the bank that financed your car can still repossess it if you have not made your monthly payments. In the short run, however, the bankruptcy automatic stay will prevent any creditors from taking action until they receive permission from the bankruptcy court.
Should I Use the Federal Bankruptcy Exemptions or State Bankruptcy Exemptions?
The federal Bankruptcy Code applies to cases filed nationwide. However, the Bankruptcy Code allows individual states to enact bankruptcy exemptions specific to that state. Some states have elected to create state-specific exemptions, and other states allow debtors to choose between federal exemptions and state bankruptcy exemptions. In New Jersey, Chapter 7 Bankruptcy filers can choose the federal exemptions or New Jersey's state-specific exemptions. In most cases, the federal exemptions are the best option.
So, Do Debtors Lose Property in a Chapter 7 Bankruptcy Case?
Most Chapter 7 cases are “no-asset” cases. That means there is no property the trustee can take and liquidate. In “no asset” cases, Chapter 7 debtors kept everything they own.
When you meet with Ernest G. Ianetti, Esq., we'll discuss your financial situation and how bankruptcy can help you get relief and get out of debt. We'll carefully review your exemptions to maximize your results. At the Law Office of Ernest G. Ianetti, Esq., we take pride in assisting our clients to achieve the best outcomes.
The Law Firm of Ernest G. Ianetti, Esq. has over 30 years of professional experience. If you are considering Chapter 7 bankruptcy, we can help you. We’ll work with you, the trustee, and your creditors to ensure your Chapter 7 case succeeds and you keep your property. To schedule a FREE Consultation, click here.
*The code references are to 11 U.S.C. (Title 11 of the United States Code).
Ready For A Consultation?
This website and its contents are attorney advertising. The information and materials offered on this site are for general informational purposes only, do not constitute and should not be considered legal advice, and are presented without any representation or warranty whatsoever, including as to the accuracy or completeness of the information. No one should, or is entitled to, rely in any manner on any of the information at this site. Parties seeking advice should consult with legal counsel familiar with their particular circumstances. Communication with the law firm through this website does not create an attorney client relationship. The law firm is a debt relief agency. We help people file for bankruptcy under the United States Code.
