What Can You Keep When You File Bankruptcy?
What a person gets to keep when he or she files for bankruptcy is called an exemption. Exemptions are important in both Chapter 7 and Chapter 13 bankruptcies, but work differently for each. In Chapter 7 bankruptcy, exemptions guide what a person may keep. In Chapter 13 bankruptcy, exemptions guide how much a person will pay back to their creditors over time. Exemption laws vary from state to state. Let’s look at each chapter a little closer.
Chapter 7 Bankruptcy: Liquidation
Many people inaccurately think that all assets will be lost when they file for Chapter 7 bankruptcy, however legal code allows that certain assets can be protected from creditors. While it is true that Chapter 7 permits assets to be sold to repay debts, many times personal property does not have enough value to be sold and is considered exempt. In many cases, people who file for Chapter 7 will retain their assets. Since one of the goals of bankruptcy is to help people start with a clean slate, people may be able to keep the necessary resources to work and live, such as their home and vehicle.
Chapter 13 Bankruptcy: Restructuring of Debts
In Chapter 13 bankruptcy, based on a consumer’s income, debt is restructured and a consolidated payment plan is developed to repay the creditors over time, typically in three to five years. In this type of bankruptcy, all assets are retained if the Chapter 13 payment plan is honored. People who file for Chapter 13 will need to prove that they have enough income to manage monthly expenses plus the debt repayment plan.
If you are burdened by debt, bankruptcy may be right for you. At Gingold & Gingold, LLC, our experienced lawyers have helped thousands of people through the complicated bankruptcy laws and court process. We offer a free bankruptcy evaluation to help you determine which type of bankruptcy is best for your immediate needs and your future success. Contact our practice to learn more.
