Bankruptcy and Exempt Property - What Exactly Do You Get to Keep


Many people turn to bankruptcy when it seems that there are no other options for resolving their problems with credit card debt or other forms of personal debt. Although it should be discussed thoroughly with an attorney, bankruptcy may provide the help you need. Still, there are some important questions that remain.

Among these questions, one of the most common concerns that people have when filing for bankruptcy is what will happen to their assets. First of all, we need to make a distinction between the two most popular forms of bankruptcy. Individuals can file Chapter 13 bankruptcy which seeks to create a repayment plan by restructuring your debt. This way you would make monthly payments over the next three to five years in order to pay part or all of your current debt.

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So if you file Chapter 13, you would not have to liquidate your personal assets. However, if you file Chapter 7 bankruptcy (for which the purpose is to wipe out your debt), then technically speaking you have to perform liquidation.

This makes sense because the bankruptcy court wants you to make your best effort to pay off your creditors for what you owe them. If you have some valuable assets that you could sell, then this could help pay down part of your debt. However, as a practical matter most individuals filing personal bankruptcy don't have any valuable assets other than a home or a car. In about 95% of Chapter 7 bankruptcy cases, the individuals do not have any assets worth liquidating.

States will typically exempt your household goods up to a certain amount. This means that your household furniture and similar items would probably not be liquidated if their total value does not exceed these limitations.

What about your home and automobile, which typically represent your most expensive assets? well, these items are typically exempt, but the specifics depend on the laws of your state.

For example, Texas has an unlimited homestead exemption regarding the value of your property, but there is a limit on how many acres of land you can own. So even if your home is worth a few hundred thousand dollars, it would be exempt under Texas law. Of course, you would still be responsible for the mortgage payments, and the bank could still take your house. However, you would not lose your house in this situation in order to pay off credit card debt.

These laws vary from state to state, though, so you should make sure to understand the specific laws in your state.


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