What Assets Can You Keep in Chapter 7 and 13 Bankruptcy?

By: GeraldOchoa

Filing for bankruptcy is a significant decision that can provide a fresh financial start for individuals overwhelmed by debt. Two common types of consumer bankruptcy are Chapter 7 and Chapter 13. Understanding what assets you can keep under each chapter is crucial in making an informed decision. Consulting a bankruptcy attorney is recommended to navigate this complex process.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” involves the sale of non-exempt assets to repay creditors. However, many individuals are surprised to find out that not all assets are up for grabs. Federal and state laws provide exemptions that allow you to protect certain property.

Homestead Exemption: This allows you to keep a certain amount of equity in your primary residence. The exemption amount varies by state, so it’s essential to consult with a bankruptcy attorney to understand how this applies in your jurisdiction.

Personal Property: Items like clothing, furniture, and household goods are usually protected up to a specific value. For example, you can often keep a vehicle of modest value.

Retirement Accounts: Funds in qualified retirement accounts, such as 401(k)s and IRAs, are typically exempt from the bankruptcy estate. This means they are not included in the assets that can be used to pay off creditors.

Tools of the Trade: Equipment and tools necessary for your profession or trade are often exempt up to a certain value. This ensures that you can continue working and earning a living.

Wildcard Exemption: Some states offer a wildcard exemption that allows you to protect a certain amount of any property you choose. This can be particularly valuable if you have assets that don’t fall under specific exemptions.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves creating a repayment plan that lasts three to five years. Unlike Chapter 7, you don’t need to sell your assets, but you must have a regular income to qualify.

Retention of All Assets: In Chapter 13, you keep all your property, including non-exempt assets. Instead, you repay your debts through a court-approved plan using your disposable income.

Ability to Catch Up on Arrears: If you’re behind on mortgage or car payments, Chapter 13 allows you to catch up on these arrears over the course of the repayment plan, preventing foreclosure or repossession.

Flexibility in Repayment Terms: Chapter 13 offers more flexibility in terms of the length and structure of your repayment plan. This can be particularly helpful for those with irregular income.

Co-signer Protections: If someone co-signed a loan for you, Chapter 13 prevents creditors from pursuing the co-signer for the debt during the repayment period.

Consulting a Bankruptcy Attorney

Navigating the intricacies of bankruptcy law can be daunting, which is why seeking advice from a knowledgeable bankruptcy attorney is crucial. They can provide personalized guidance based on your specific circumstances and the laws applicable in your state.

Deciding between Chapter 7 and Chapter 13 bankruptcy requires careful consideration of your assets, income, and financial goals. Understanding which assets you can keep under each chapter is essential for making an informed choice. Remember, consulting a bankruptcy attorney is a crucial step in this process to ensure you make the best decisions for your financial future.