What Property Can You Keep In Bankruptcy?

What Are You Allowed to Keep in Each Chapter of Bankruptcy?

Like many questions about bankruptcy, what property can be kept by the debtor depends on which chapter of bankruptcy is filed. Most debtors file Chapter 7 or Chapter 13 so these will be discussed.

What Property Can You Keep In Chapter 7?

In determining what property a debtor can keep in Chapter 7, the property is first divided into "Secured" and "Unsecured" property. However, the short answer is that most debtors are able to keep most of their assets either through the established exemptions as discussed below, or through negotiation with the trustee.

Generally, a debtor in Chapter 7 gets to keep all "Secured" property where the loan is current and the debtor agrees to keep paying the loan. When the loan on "Secured" property is past due, and the debtor is unable to either pay the past due amount or reach an agreement with the lender, this property is generally returned to the lender and the loan is wiped out.

"Unsecured" property is treated differently. In Chapter 7, the trustee is looking for assets that the trustee can sell in order to generate cash to pay the unsecured creditors such as credit card companies. The trustee is able to sell all assets that are included in the bankruptcy estate and which are not covered by an exemption. An exemption is effectively a dollar amount of an asset that is protected from the trustee taking it to sell. There are many exemptions available for debtors in California and most debtors are able to keep most of their assets. For example of one exemption, under California Code Section 703, the debtor's equity in one automobile is protected up to $3,750. This means that if the debtor's car has less than $3,750 of equity, the trustee can't take it to sell. If the debtor has more than $3,750 in equity in the car, there is a "Wild Card" exemption that may be available to the debtor to protect the asset from the trustee. For most of the debtor's household goods such as furniture, appliances, etc, all of these items are generally covered by exemptions. The "Wildcard" exemption can be used for any assets of the debtor.

What Property Can You Keep In Chapter 13?

A debtor is able to keep more assets in Chapter 13 than in Chapter 7. This is because the debtor is given time to pay back past-due payments on any secured property such as cars, houses, etc. The debtor gets to decide what property to keep and pay back.

For example, if the debtor is 6 months behind in car payments, the debtor can choose to keep the car and is given up to 60 months to pay back the delinquent car payments. Of course, during this time the debtor must also continue making the regular payments on the loan.

What About Retirement Accounts?

The general rule is that all retirement accounts are exempt up to a certain amount and the debtor gets to keep the money in the retirement accounts. There are limits on the amount protected so check with your attorney before doing any planning.

If You Have More Questions

Please contact us if you have more questions or are ready to move forward and start the process of becoming debt-free. Remember, we are here to help you resolve your debt problems, so call us now!

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