A common misconception regarding filing bankruptcy is that all property must be sold or forfeited. While some property is often surrendered in bankruptcy, there are certain things that are exempt from forfeiture provided certain rules of the Bankruptcy Code are followed. The question of what property can be kept through a bankruptcy depends mainly on what you own, and whether you file Chapter 7 or Chapter 13 bankruptcy.
Keeping Your Home in Bankruptcy
Chapter 7: Most filers of Chapter 7 avoid foreclosure and keep their home if current on mortgage payments. However, if there is significant equity in the home, it may be used by the trustee to pay creditors.
Chapter 13: An individual filing Chapter 13 may keep their home even if they are behind on their mortgage payments. The trustee assigned to your case can place your mortgage payment into the payment plan that you must follow. If all court ordered payments are made, the home can be saved from foreclosure or judicial sale.
Can I Keep My Car?
Chapter 7: Keeping your car is possible when filing for Chapter 7 bankruptcy as long as you remain current on your payments and, in most cases, file a reaffirmation agreement—a promise to continue paying the car loan—with the court and the lien holder. However, second cars or recreational vehicles oftentimes must be forfeited to pay off a portion of your debt.
Chapter 13: Filing Chapter 13 allows you to keep your car in most cases, even if you are behind in your payments, because the payment plan will allow you a little more flexibility than found in a Chapter 7 bankruptcy.
Other Personal Property: What is Exempt and What’s Not
Many states differ on what property is considered exempt from forfeiture. However, the exempt and nonexempt property categories are generally broken down as follows.
Exempt Property:
- Household appliances such as ovens or stoves
- Cars and vehicles, up to a certain amount of value
- Most household furnishings like a couch, bed or kitchen table
- Jewelry, up to a certain value
- Pensions and many retirement accounts
- Portions of the equity in a debtors home
- Tools used for work, up to a certain value
- Damages that have been awarded to a debtor in a personal injury lawsuit
- Most of your clothing
Nonexempt Property:
- Expensive items not necessary to survive, such as musical instruments
- Collections, such as baseball cards, coins, stamps, etc.
- Bank accounts, cash, stocks, many investments
- Certain family heirlooms
- Recreational vehicles or second cars
- Vacation homes or second properties