Many people that come to see us about bankruptcy are concerned about losing their property. There is a misconception that, upon filing for bankruptcy protection from one’s creditors, the court will take your home, car, and furniture. The truth is that, in the vast majority of bankruptcy cases filed by individuals, absolutely no property is taken or sold by the court.
It is true that upon filing for bankruptcy, the court will appoint a trustee to review the individuals belongings and, if appropriate, to sell the assets for the benefit of the person’s creditors. If the case is filed properly, however, there will be no assets to be sold by the trustee. Debtor’s who file bankruptcy have the right to protect, or claim as exempt, certain assets as they move beyond bankruptcy. The amount and type of property that a debtor can claim as exempt will be generally be determined by the state in which the debtor lives. Each state has either created its own exemptions or adopted certain federal exemptions. In many cases, these exemptions will allow the debtor to keep his home, automobile and other assets. It should be noted that this does not mean that the property will be owned free and clear. If the debtor owes money against her property, such as a mortgage or car loan, she will be required to keep paying that loan following the bankruptcy in order to keep the property. This is often done through what bankruptcy attorneys call a reaffirmation agreement. It is a commitment to keep paying for the collateral after the bankruptcy filing.
In some circumstances, the person filing bankruptcy will own more property than he can protect, or claim as exempt, in the bankruptcy case. Even in this situation, however, he will be able to maintain the property by filing a Chapter 13 Bankruptcy. In this type bankruptcy, the debtor will work with his attorney to formulate a plan to pay the creditors over a 3 to 5 year period the amount that the creditors would have received if his assets had been liquidated. Chapter 13 for an individual is similar to what large corporations often do through a Chapter 11 bankruptcy. The debtor keeps the assets he needs to effectively reorganize his finances while being protected by the bankruptcy court.
The important thing to learn here is that there are many misconceptions about filing bankruptcy. Please don’t make important decisions about your financial future without consulting face to face with a qualified bankruptcy attorney. Please visit schedule a free, private consultation with one of our licensed attorneys at the office that is most convenient to you.