Many people have the impression that bankruptcy means giving up everything you own. Quite the opposite is true; bankruptcy is designed to offer you relief from debt without the need to give up basic things that bring stability to your life. That said, a great deal of what you can keep depends on the specifics of your financial situation and there are rules for each category of possessions you have. These rules vary from state to state, so finding out exactly what you can keep in bankruptcy will take some research on your part.
What You Can Keep Under Chapter 7
When filing for Chapter 7 bankruptcy relief, the assumption is that there is no possible way for you to repay your debts, even with a structured repayment plan. Otherwise, you’d be filing under Chapter 13, or maybe not filing at all. For this reason, and because certain of your debts will be discharged, there is a limit to what you can keep. Normally, you can keep your home, cars, and most of your needed possessions and family heirlooms, but for each category of possessions, there is an upper monetary limit to the value of what you are allowed to hold onto. These limits are called “exemptions”.
For your home, as long as you’ve been making your payments and don’t have too much equity, you can request a “reaffirmation agreement” with your lender and keep your home. If you haven’t been making your payments, often you can still keep your home as long as you don’t have too much equity. The problem with having a lot of equity when filing Chapter 7 is that your creditors are allowed to liquidate assets to pay back your debts, and so a limit is placed on how much value (money) you can keep. Having a lot of equity in your home is like cash; if you really want to hang onto your house in such cases, Chapter 13 might be a better solution.
In addition to exemptions for your house, there are exemptions for vehicles and just about everything else you might own. You’ll be able to keep things up to the limit of each exemption. For example, if the exemption for household goods is $5,000 in your state and you own $10,000 in household goods, you’re going to have to give up some household goods.
What You Can Keep Under Chapter 13
Under Chapter 13, you are agreeing to pay back your debts. You can therefore, in many cases, keep everything you own without too much concern for exemptions. However, you still have to pay your creditors an amount that’s fair, which means the amount must be at least as much as what the creditors would have received under a Chapter 7 case. It’s possible you will have to liquidate certain possessions or assets, but not necessarily. This can become a tricky issue with great variations from state to state, so it’s best to talk to your local bankruptcy court or an attorney.
Bankruptcy: What You Keep Vs. What You Give Away
In conclusion, when thinking about what you can keep, a lot depends on how you look at it. While you will get to keep most basic material things in many cases, bankruptcy is a very humbling experience, and usually getting through it is a lot of hard work. Certainly you won’t get to keep everything, but in addition to what you have to give away, you’ll be giving away a lot of stress while getting to keep your sanity.
Usually, you’ll be able to keep much of what you own, including many assets and possessions. In addition to what you’ll have to give away, you’ll be giving up certain freedoms and spending patterns, such as lines of credit and your ability to take out loans. You’ll also be giving up the ability to leverage many assets.
Additionally, with bankruptcy, you’ll be giving up the latitude to make financial mistakes, and in return you’ll have keep a lot personal discipline. In some cases, you may be giving up long-held attitudes concerning your relationship with money, as well as entire lifestyle choices, both of which involve sacrifices of a non-material nature.
Thanks to our legal system, in return you’ll be getting a fresh start.