Law Office of Lance Dacre

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What Can You Keep After Filing Bankruptcy?

Posted on | August 2, 2012 | No Comments

Many misconceptions about bankruptcy center on what a person can keep and what will be sold to pay bills. Let’s break the question down into three parts, Chapter 13 vs. Chapter 7 bankruptcy, exempt property, and secured/unsecured loans.

Chapter 13 bankruptcy

In a Chapter 13 bankruptcy, you will keep your property, reorganize your debts, and repay creditors on a court-approved schedule. Your repayment plan may involve sale of some assets. Chapter 13 is commonly chosen by people avoiding foreclosure or repossession of property.

Exemptions in a Chapter 7 bankruptcy

In a Chapter 7 bankruptcy, certain property considered necessary for you to rebuild your life will be exempt from the bankruptcy. Remaining property may be sold and the proceeds used to pay bills. Important features of Chapter 7 are exemptions [link to previous blog]—what you keep after bankruptcy. You will choose from two exemption plans. Depending on the plan you choose and a number of factors, you can keep some property, including all or part of the equity in your home and car, your retirement plan, appliances and personal property, tools of your trade and professional licenses, a business vehicle, and insurance benefits. An expensive car may be ordered sold to pay bills, but if you have equity in the car, you will receive that amount up to the limit of the exemption law. Plan two offers a Wild card exemption that you can apply to any property. Factors the court considers when determining the extent of your exemptions are your age, marital status, income, and trade. Your lawyer will explain how best to present issues to the court.

Secured and unsecured loans

If you have a secured loan, such as an auto loan, appliance loan, or loan to purchase a musical instrument, the creditor can repossess the security—except for those items covered by an exemption. Unsecured loans, such as credit card debt, are not attached to any piece of property, so no items can be repossessed. The court may order luxury items such as jewelry beyond the value of the exemption sold to pay creditors.

Are there any gray areas when deciding what you can keep?

There are cases in which the court issues a surprising decision after considering a seemingly obvious question. And some language in the law leaves room for interpretation as to your needs and those of your family. For that reason, it is recommended that a person considering Chapter 7 or Chapter 13 bankruptcy engage the counsel of an experienced bankruptcy attorney. Consider the following example of court decisions on foreclosures, one related to a Chapter 13 bankruptcy.

Foreclosure cases (Gomes v. Countrywide and Salazar vs. U.S. Bank National Association) heard in separate California districts in 2011 appeared on first glance to be very similar. In the first, the court upheld the foreclosure, in the second, the foreclosure was ruled invalid. The difference hinged on the recording of a deed of trust.

Get advice before deciding bankruptcy is the answer

If bankruptcy is the answer for you, decisions you make regarding which exemption plan to use or how to present your situation and assets may have long-term effects on your financial health and personal well-being. If you would like advice, please contact the Law Offices of Lance Dacre in Napa, CA. An experienced bankruptcy attorney from our firm will evaluate your situation, explain your options, and help you at every point in the bankruptcy process.

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