Worrying about what happens to assets in bankruptcy is common. Filing for bankruptcy can be daunting, especially when you are not sure what will happen to your assets. If you are considering filing for bankruptcy protection, understanding the intricacies of the bankruptcy process is crucial. This blog post will demystify what happens to your assets in bankruptcy, addressing common misconceptions and providing clear guidance.
Understanding the Bankruptcy Process
Before we explore the specifics of asset protection during bankruptcy, let us clarify what bankruptcy entails. Bankruptcy is a legal process that relieves individuals and businesses overwhelmed by debt. It allows them to either liquidate assets to pay off creditors (Chapter 7) or create a repayment plan (Chapter 13).
Common Misconceptions About Bankruptcy and Assets
Many people fear losing their most valuable possessions when they file for bankruptcy. Here are some common myths about assets in bankruptcy:
- I will lose my home.
- My car will be taken away.
- All my assets will be liquidated.
While these concerns are understandable, the reality is often more favorable, especially with proper legal guidance.
Asset Protection in Bankruptcy
Home and Real Estate
For most people, their primary concern is their home. In a Chapter 7 bankruptcy, whether you can keep your home depends on the equity you have in it.
- Chapter 7: If your home has too much equity, it might be at risk. However, most bankruptcy filers can protect their homes through exemptions.
- Chapter 13: You can keep your home, but the amount you must pay back is related to your home’s equity and income.
Vehicles
Similar to homes, vehicles are another major asset in bankruptcy that causes concern.
- Chapter 7: If you have too much equity in your vehicle, it could be at risk. However, most people can protect their primary vehicle.
- Chapter 13: You can keep your vehicles, but the amount you pay back is influenced by the equity in those vehicles. Additionally, Chapter 13 offers tools to reduce interest rates and recover repossessed vehicles.
Personal Property
In most cases, personal property like household goods and clothing are assets in bankruptcy that are protected by exemptions. High-value items like boats or additional vehicles might need special consideration under Chapter 13.
Making an Informed Decision
It is essential to consult with a knowledgeable bankruptcy attorney to understand your specific situation. Here is a step-by-step outline of what typically happens during the consultation process:
- Initial Consultation: Discuss your financial situation with a bankruptcy attorney.
- Asset Evaluation: Determine the equity in your home and vehicles using comparative market analysis (CMA) and tools like Kelley Blue Book.
- Filing Decision: Based on the analysis, decide whether Chapter 7 or Chapter 13 is more appropriate.
- Filing for Bankruptcy: Proceed with filing, ensuring all assets are correctly listed, and exemptions are applied.
Real-Life Examples
The Hunters
The Hunters came to our firm wanting to keep their home while filing for Chapter 7 bankruptcy. After conducting a liquidation analysis and securing a CMA, we determined that their home had minimal equity and was exempt. They filed for Chapter 7, kept their home, and received their discharge.
The Kellys
The Kellys initially believed they would have to pay back all their debt under Chapter 13. However, after analyzing their situation, we reduced their monthly payments by 50%, significantly easing their financial burden.
Steps to Protecting Your Assets in Bankruptcy
- Consult an Expert: Always consult with a bankruptcy attorney to understand your specific situation.
- Understand Your Options: Different chapters offer different protections for your assets.
- Stay Informed: Knowing the facts can help you make the best decision for your financial future.
Contact Lee M. Perlman for Help
Filing for bankruptcy is a crucial decision, but it does not have to mean losing all your assets. With proper guidance, you can protect your assets in bankruptcy, including your home, vehicle, and other essential possessions. If you are facing financial difficulties, do not hesitate to seek professional advice. Contact our firm for a confidential consultation to understand your options better.
