BANKRUPTCY - PROPERTY RULES

What Property Can I Keep?

In a Chapter 7 case, you can keep all property which the law says is "exempt" from the claims of creditors. The State and Federal Law provide different exemptions and should be examined to see which is better for you. In many cases, the federal exemptions, listed above, are more generous.

You must consider the "equity" in some items to determine whether they are exempt. Equity is the difference between what the item is worth and what you owe against it. The value of property for bankruptcy purposes is what it is worth now and not what you paid. For furniture and cars this may be a lot less than what you paid or even the replacement cost. To the extent that the exemption exceeds the equity because you owe more on the item, that portion of the loan that was secured may be declared unsecured and then discharged. However, while your exemptions may allow you to keep property even in a Chapter 7 case, your exemptions do not make any difference to the right of the mortgage holder or car loan creditor to take the property to cover the debt if you are behind in your payments.

What Happens to My Home and Car if I File?

Each case is different, but generally you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. If not fully exempt you may still retain your property if you pay its nonexempt value per your plan under Chapter 13.

However, for secured creditors bankruptcy does not eliminate security interests. You must make your payments as due or the creditor may be able to take your home or car and sell it during or after the bankruptcy. As mentioned, however, simply filing with the Court will cause an "Automatic Stay" to issue and stop all creditor proceedings to take your property. You will then have an opportunity to convince the Court you should be able to retain the property.

Methods to keep secured property after you file include:

» Agree to keep making your payments on the debt until it is paid in full
» Pay the creditor an amount equal to the value of the property
» Work-Out an agreement with the creditor.

When your debt was created by fraud by the creditor, or the creditor took a lien against all your household items in exchange for selling you some other additional item, you can challenge the debt and ask the Court to declare the debt voided and still retain the property you used to secure the debt in the first place.