Before you decide to file for bankruptcy, you should carefully evaluate and discuss with your lawyer the effects filing will have on your assets. If you do not do this, you might discover after filing that you will lose assets you did not expect to lose. Here are several important things to understand about assets in bankruptcy.
The Effects Depend on the Branch You File
The main thing to understand is that Chapter 7 and Chapter 13 bankruptcy have huge differences, but both branches offer benefits to people who file. If you file for Chapter 13, you will not risk losing assets you own. If you file for Chapter 7, you may lose your assets.
You must understand that you should not base your decision on which branch to use on this factor alone, though. In fact, when you meet with a lawyer, he or she will first help you determine which branch you qualify for. Secondly, the lawyer will give you advice about which branch would benefit you more. You should stick with choosing the branch your lawyer recommends.
The Differences Exist for a Reason
As you can see, each branch handles assets differently, and there is a good reason for this. When you file for Chapter 13, you are filing under a branch that still requires repayment of debts. This means that you will repay some or all of the debts you owe under a new payment policy. In exchange, you typically can keep the assets you have.
Under Chapter 7, you will not repay debts. Instead, the court will issue a discharge for any qualifying debts, which means the court forgives the debts. The tradeoff for this debt forgiveness is the risk of losing assets.
When the trustee receives your case, he or she will find a way to repay your creditors some of the money you owe them, and trustees will look closely at a person's assets for this purpose. If you have assets that could easily be sold for cash, the trustee will want to sell these assets to raise cash to pay off some of the debts the case discharges.
The Law Handles Some Assets Differently
Fortunately, though, rules exist that protect the person filing for bankruptcy, and these rules give a person the right to keep things that are necessities or things that have very little equity. For example, you can keep your car if you file for Chapter 7, as long as it meets certain guidelines. You can also keep your home, as long as you have little equity in it.
When you meet with a lawyer, he or she will examine all the assets you own in order to tell you what will most likely happen to them if you file for Chapter 7. The lawyer will aim to exempt the assets, which means the bankruptcy trustee cannot touch them. You can keep any assets that are considered exempt in your case.
Assets that typically fall into the non-exempt category are those you may lose in your case, and this often includes cash, investments, vacation homes, and expensive collections. Assets that fall into the exempt category typically include your house, car, appliances, furniture, clothing, and personal belongings.
Your lawyer will be able to give you more details about your assets and the categories they will fall into when you meet with him or her.
As you begin preparing for bankruptcy, you should schedule a consultation visit with The Michelson Law Office. Our office can help you learn more about your options and help you decide which branch to use for the most relief.