Many people avoid looking into the benefits bankruptcy can offer because they suffer from false impressions of what a bankruptcy actually does or how it works. Thousands of individuals throughout the country may qualify for one or more forms of bankruptcy, but their fears over the difficulty of undergoing a bankruptcy keep them from finding out what bankruptcy might do for them. In many cases, some people do not realize that much of their property may enjoy exemptions from one form of bankruptcy or another.
If your reason for avoiding a bankruptcy is worrying that you'll lose everything, you owe it to yourself and those around you to do some research and seek out professional evaluation of your finances. An experienced bankruptcy attorney can help you assess your situation and determine if you qualify for either Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 is the most widely available form of bankruptcy. Under Chapter 7, a person turns over his or her property to a trustee who sells the property to repay a portion of the person's debt. Typically, the trustee only repays a fraction of the debt owed, and the court discharges the rest or deems it non-dischargeable.
Not all property is vulnerable to bankruptcy
Depending on a number of factors, you may qualify to keep a variety of possessions and investments without turning them over to the trustee.
However, it is important to understand that varying factors in each person's individual bankruptcy may qualify or disqualify certain exemptions. Not all people who qualify for Chapter 7 necessarily receive the same exemptions, so these examples may not all apply in the same specific case.
What is exempt under Chapter 7?
One of the most common exemptions, especially for those in their middle age or older, is over retirement plans. Many retirement plans are entirely exempt under Chapter 7, so you may be able to keep all of this asset. Still, it's always important to check with a professional to be sure this applies in your case.
Similarly, if a person receives monetary damages in a personal injury case, those damages typically enjoy exemption. In some cases, a homeowner may retain a portion of equity built up in the property.
As far as material possessions go, there are several exemptions available, including:
- Clothing, up to a certain amount, or if it is deemed "necessary"
- Similarly "necessary" household items or furniture
- Some home appliances
- Some tools or other items necessary for a person's work
- A car, if it has a low enough value,
- Some jewelry, if it meets certain qualifications
While these exemptions leave many things that you may have to give up under Chapter 7, you may qualify to keep more than you expect.