Chapter 7 bankruptcy, which is often called “total” bankruptcy, is designed to give people in debt a fresh start — but that fresh start sometimes requires a few sacrifices.
Some people have to give up valuable pieces of property so that the bankruptcy trustee can liquidate (sell) them and use the proceeds to partially repay the debtor’s bills.
However, most people find out that their property falls into one or more categories of “exemptions” — meaning that none of it is subject to seizure by the court. Understanding how exemptions work and which exemptions to choose given your unique situation — those provided under your state’s laws or the federal system — is what makes a good bankruptcy attorney important to have.
The exemption process can be difficult to understand. People who don’t follow all of the nuances of the law can end up giving up property they’re entitled to keep!
Consider the following example:
You’ve probably heard that you can keep one car in bankruptcy. This might throw you into a panic if you and your spouse both need a car to make it to work.
However, how much of that car do you really own? If you’re like most people, you took out the loan on the car with as little down as possible, for as long as possible. If you had a trade-in, you may have even absorbed negative equity from your last car loan into your current car loan.
When your car is appraised, assume that the wear-and-tear on the vehicle puts it in average condition and imagine that it is now valued at $5,000. However, your total loan on the vehicle is $6,500. That means you have negative equity in the car, so it is of no value to the trustee or your debtors. Your other car, if it does have any equity, can probably be exempted (as long as it isn’t something like a very expensive sports car that you own outright).
A lot of people prevent themselves from taking advantage of bankruptcy laws because of unnecessary fears. Don’t fall into that trap — talk to a bankruptcy attorney today about asset forfeiture and learn more about what you really stand to lose (or keep).
Source: FindLaw, “Exempt vs. Non-exempt Property Under Chapter 7,” accessed Sept. 1, 2017