3 Reasons Many People Keep Their Stuff In Bankruptcy

Filing for bankruptcy is a stressful decision for most people. One of the biggest concerns for many is the idea of losing their stuff. But did you know that many people see few or no assets actually liquidated? Here are three reasons why. 

1. The Bankruptcy Exemptions

The quickest and easiest way to prevent losing your assets is to use the bankruptcy exemption lists. These are lists published by states and the federal bankruptcy court which detail the types and values of assets that are exempt from liquidation in Chapter 7. 

Consider the example of a homeowner who wants to file bankruptcy on their credit card debt. If they own outright a used vehicle worth $4,000, then according to the federal bankruptcy exemption list, this vehicle is completely eligible for exemption and would not be liquidated. 

2. Equity Calculations

If you look at your state's bankruptcy exemptions, you may be disappointed to see that the values seem too low to help protect your biggest assets. For example, the federal rules exempt up to $27,900 of value in your principal home. Most homes are worth far more. However, this isn't as bad as it appears. The amount listed is the equity you have in that real estate. Equity is the difference between the market value for an asset and what you owe on a secured loan attached to it. 

In the example above, the homeowner's primary home is worth $250,000. However, they currently owe $150,000 on the primary mortgage and $75,000 on a recent secondary loan. Their equity in the home is only $25,000. The equity is fully exempt from liquidation. 

3. Chapter 13 Repayment

Can't save everything by using the exemptions? Then it may be time to look into Chapter 13, or wage earner's bankruptcy. This method does not involve the liquidation of assets. Instead, you pay priority and obligatory debts first and then make a payment toward unsecured debts each month. 

Looking again at the homeowner example above. Perhaps they're behind in payments and can't get caught up under Chapter 7 rules. Through Chapter 13, they can roll all those past-due payments as well as their credit card debt into a single payment plan spread over five years. This is a manageable payment each month, and their home is saved. 

Where to Learn More

These are just a few examples of how your assets may be safe under bankruptcy rules. Find out how to use these tips and learn more by meeting with a bankruptcy lawyer in your state today.