If you are thinking about bankruptcy, one of your biggest concerns may be whether you will lose everything you own. You may worry about your home, your vehicle or the retirement savings you spent years building.
Bankruptcy does not automatically require you to give up everything you have. Federal and state laws include exemptions that shield certain assets from creditors. Whether you can keep specific assets depends on factors such as the type of bankruptcy you file, the value of the asset and the amount of equity you have in it.
Why many people fear losing their property
Many people associate bankruptcy with losing everything. Television, movies and stories from others can create the impression that filing bankruptcy means turning over all of your possessions. The concerns people raise most frequently include:
- Losing a home to a sale process
- Giving up a vehicle needed for daily transportation
- Losing money saved for retirement
- Surrendering funds held in bank accounts
- Parting with furniture and personal belongings
These concerns are understandable. However, bankruptcy laws allow many people to keep assets that support their daily lives and financial stability.
What property can be protected in bankruptcy?
Bankruptcy exemptions shield certain assets from creditors. The amount of protection available depends on your financial circumstances and the exemptions that apply to your case. Assets that commonly qualify for protection include:
- Primary residence within exemption limits
- Personal vehicle within exemption limits
- Qualified retirement accounts
- Household furniture and appliances
- Clothing and personal items
- Tools used to earn income
- Certain amounts of cash or account funds
The protections available in your case will depend on the value of your assets, the debts involved and the exemptions available under the law.
How Chapter 7 and Chapter 13 differ when it comes to assets
Chapter 7 and Chapter 13 handle assets differently. In a Chapter 7 case, a trustee can sell nonexempt assets and distribute the proceeds to creditors. Even so, many Chapter 7 filers keep most or all of what they own because exemptions cover their assets.
Chapter 13 uses a repayment plan that usually lasts three to five years. If you file Chapter 13, you generally keep your assets while making plan payments. This approach can help homeowners who have fallen behind on mortgage payments and people who need time to address certain secured debts.
Bankruptcy is not designed to leave you with nothing
A bankruptcy filing does not automatically result in the loss of all your assets. The law includes exemptions and other provisions that allow many people to keep important possessions while addressing serious debt problems.
For many filers, the question is not whether they will lose everything. The more accurate question is which assets the law allows them to keep. The answer depends on the details of the case and the protections available under bankruptcy law.
