Daily, I speak to individuals who have borrowed money from a loan company and pledged their household goods as collateral. These loans are most often at very high interest rates and require that the borrower pledge nearly everything in their house including the kitchen sink. Debtors often complain of harassing phone calls and often times knocks on their door when they are late with payments. One of the great benefits of filing a bankruptcy is that the Bankruptcy Code allows for the lien on the household goods to be avoided so that the debtor can keep the items while the debt is treated as unsecured.
Household Items You Can Keep
In a Chapter 7 bankruptcy, the debt would be discharged and in a Chapter 13 bankruptcy, the debt would be paid as a general or non-priority unsecured creditor. The Bankruptcy Code enumerates the household goods on which the lien can be avoided and the ones not subject to lien avoidance. Under 11 U.S.C. §522 (f)(1)(B), the lien can be avoided on household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor; implements , professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or professionally prescribed health aids for the debtor or a dependent of the debtor. The Code further defines household goods under 11 U.S.C. §522 (f)(4)(A) to mean clothing; furniture; appliances; 1 radio; 1 television; 1 VCR; linens, china; crockery; kitchenware; educational materials and educational equipment primarily for the use of minor dependent children of the debtor; medical equipment and supplies; furniture exclusively for the use of minor children, or elderly or disabled dependents of the debtor; personal effects (including toys and hobby equipment of minor dependent children and weeding rings) of the debtor and the dependents of the debtor; and 1 personal computer and related equipment.
Household Items You Can’t Keep
Under 11 U.S.C. §522 (f)(4)(B), the term “household goods” does not include works of art (unless by or of the debtor, or any relative of the debtor); electronic entertainment equipment with a fair market value of more than $500 in the aggregate (except 1 television, 1 radio, and 1 VCR); items acquired as antiques with a fair market value of more than $500 in aggregate; jewelry with a fair market value of more than $500 in the aggregate (except wedding rings); and a computer (except as otherwise provided for in this section), motor vehicle (including a tractor or lawn tractor), boat, or a motorized recreational device, conveyance, vehicle, watercraft, or aircraft.
If you are feeling pressured or bullied by a loan company, we can help. Bankruptcy is a great way to handle these overwhelming loans and yet be able to keep your household items. You have options to keep even the items on which the lien cannot be avoided. Contact one of our offices today for a free consultation.
Heather Ellis Banks is an Associate Attorney at the Bond & Botes Law Offices in Knoxville, Tennessee. She holds a Bachelor of Science from the University of Tennessee Knoxville, and a Juris Doctorate from the University of Memphis, Cecil.C. Humphreys School of Law. She has been helping consumers to navigate through the bankruptcy process since 2005. Read her full bio here.