You want to know: “Can I really keep everything I own if I file bankruptcy?”
A two-part answer:
1) Yes, you can, usually, keep those possessions that are all yours (you don’t owe any money on them).
2) Yes, you can, usually, keep those particular possessions on which you are making payments to a creditor (like your home or vehicle), IF you want to keep it them, AND are willing and able to meet certain conditions. (Hint: those conditions are usually lots better in bankruptcy than without one.)
In today’s blog I’ll get into the first part of that answer. I’ll get to the second part later.
Most people who file bankruptcy can keep what they own for two reasons: 1) exemptions and 2) Chapter 13 protections. I’m covering exemptions today.
Make no mistake: at the heart of bankruptcy is the basic principle that your debts are discharged—legally written off forever—in return for you giving all your assets to your creditors. Except you can keep any of your assets which fit within an exemption. As the saying goes, this exception swallows the rule. Most of the time, all assets are exempt and so debtors get a Chapter 7 discharge without giving anything to the trustee.
Exemptions are simply a list of the types and amounts of assets that are protected from your creditors, and thus from the Chapter 7 trustee acting for those creditors. But exemptions are anything but simple.
First, the Bankruptcy Code contains its set of federal exemptions, and each state also has its own exemptions. If you file a bankruptcy in certain states, you have a choice between using the federal exemptions and the state ones, while in other states you can only use the state exemptions. In states where you have a choice, picking which of the two exemption schemes is better for you is often not at all obvious and you need an experienced attorney to advise you.
Second, if you have moved relatively recently from another state, you may have to use the exemption rules of your prior state. Because different state’s rules can differ wildly, thousands of dollars can be at stake depending on what day your bankruptcy is filed.
Third, once you know which set of exemptions apply to you, whether any of your particular assets is covered by an exemption, and thus protected from your creditors, is often not clear. The exemption statues were often written many decades ago, use archaic language, and have a whole history of court ruling to interpret what they include. Plus the local trustees often have unwritten rules about how they interpret the exemption categories in practice. So, determining whether an asset is exempt or not is often much, much more than checking down a list of exemptions. By way of example, if you and your spouse each have one vehicle that you use for getting to work, and a third one used by your 18-year-old to get back and forth to school, will your vehicle exemption cover all three vehicles? Under what circumstances?
So navigating through exemptions can be much more complicated than it looks, and is one of the most important services provided by a bankruptcy attorney.
The fact remains that among most people who do end up filing a Chapter 7 bankruptcy case, everything they own DOES fit within the exemptions. So the bankruptcy trustee takes nothing from them.
But what if you DO own one or more assets which do not fit any of the available exemptions? How can those still be protected through a Chapter 13 case? I cover that in my next blog.