Are you ready to file bankruptcy but too worried about what will happen to your belongings? Don’t be! The bankruptcy code is very clear on what will happen to your belongings when you file for Chapter 7 or Chapter 13 bankruptcy. Most of the rules for keeping your belongings when you file bankruptcy deal with the specific state that you live in and their rule on the matter. Here are some important things to know about the most commonly mentioned items that debtors are worried about losing:
1. Home If you are filing a Chapter 7 bankruptcy to get rid of large amounts of unsecured debt such as credit cards or medical bills and you don’t want to lose your home then remember one phrase: to keep it, stay current. If you stay current on your mortgage payments during your bankruptcy process then it will show the court that you will be able to do that once your personal bankruptcy is completed as well. If your home is paid in full then the situation is a bit different and relies solely on how much equity your state bankruptcy exemptions protect.
2. Vehicle Again, the key phrase if you want to keep your vehicle is: to keep it, stay current. If you have multiple vehicles then the bankruptcy court may want you to prove that each one is a necessity and if that can’t be proven then the court may choose to take one unnecessary vehicle and use it to pay back some of your creditors. If you have one or more paid in full vehicles then the issue again goes to your state bankruptcy exemption for vehicles and how much it allows to be protected.
3. Clothes, jewelry, and/or other household items Each state has the right to create their own bankruptcy exemptions and the majority of the states have a miscellaneous or “catch all” exemption for items like clothing, jewelry, and household items. The protection for these items can range from $1500-$10,000 depending on what state you live in. If you are unsure about your state’s bankruptcy exemptions you should consult the bankruptcy court (online or over the phone) in your district or a local bankruptcy attorney.
As you can probably tell, state bankruptcy exemptions are incredibly important to the filing of any case. Using them correctly can ensure that your belongings are safe and your debts are erased. Using them incorrectly can result in not only losing your debt, but losing property that you intended to keep. Typically, personal bankruptcy attorneys that have been practicing in the same state for several years are knowledgeable in the specific state exemptions that will be most beneficial to your situation. The bottom line is that filing bankruptcy is not going to strip you of everything you have in your name. The bankruptcy court understands that sometimes all people need is to wipe away their debt and start fresh with what they have.