Not only is there a list of federal exemptions in the bankruptcy code, but each state also defines the exemptions available to its residents. Exemptions are limited in two ways:. Some states allow you to pick between federal and state exemptions, depending on which list best protects your property.
To find out the assets that you'll be able to protect in your state, see Bankruptcy Exemptions by State. Most states allow you to protect some amount of value in your homestead—which is usually your primary residence. If you can choose the federal exemptions, you might be better off choosing them. The amounts change from time to time. You'll find the most current figures in The Federal Bankruptcy Exemptions.
Ordinarily, in a Chapter 7 bankruptcy , you must relinquish any nonexempt property to the bankruptcy trustee responsible for administering your matter. However, just because you can't protect all of your equity doesn't necessarily mean that you'll lose your property. Most Chapter 7 trustees won't attempt to liquidate nonexempt property unless the effort nets a meaningful payment on your unsecured debt , such as credit card balances, personal loans, and medical and utility bills.
In other words, after the trustee pays out the required amounts, there must be money left over. So, although there are no hard and fast rules when deciding whether to liquidate your home for the bankruptcy estate, the trustee will consider the following:. Because the trustee would pay creditors more than half their claims, the trustee will probably sell the house.
If the trustee looks at all the facts and decides not to seize and sell your house, she will abandon it—formally notify the court of her decision not to pursue that property. When the trustee abandons the property, it reverts to you without restrictions. If the trustee is interested in the equity in your house, you might be able to protect your property from sale by striking a deal with the trustee to substitute exempt assets or cash to "buy" back the property from the trustee. You can also retain your property if you file a Chapter 13 case rather than a Chapter 7 bankruptcy.
Under Chapter 13 bankruptcy, you submit a proposed plan to make monthly payments for three to five years to a bankruptcy trustee who distributes those payments to creditors who've filed proper claims.
In a Chapter 13 case, you won't be required to turn over any property other than cash. Before the bankruptcy court approves your payment plan, you have to meet two threshold requirements.
The plan has to be a good deal for the unsecured creditors, and it has to be financially feasible for you. By Cara O'Neill , Attorney. If you're a business owner and you file a personal Chapter 7 bankruptcy , you might be able to keep your business. But it could put the company in jeopardy. You'll lose the business if the Chapter 7 trustee can sell any of the following:. Before making a bankruptcy decision, you'll want to learn about other bankruptcy options available to business owners , as well as the differences between Chapter 7 and 11 and Chapter 13 and 11 bankruptcy.
Individuals who file for Chapter 7 don't lose everything. You can designate some of your property as "exempt" protected so that after the case, you'll have the things you'll need for a fresh start.
In exchange for forgiveness discharge of most or all of your debts, you must turn over all nonexempt property to the Chapter 7 trustee, who will sell it and use the proceeds to pay your creditors.
Exempting your company or its assets is the key to keeping it in Chapter 7 bankruptcy. Depending on the business, you'll need to be able to protect either:.
To find out whether you'll be able to do so, you'll look to the exemptions of the state where you live or the state where the business assets are located. Some states allow debtors to choose between the state exemptions and a list within the bankruptcy code itself the federal exemptions. You might have difficulty protecting everything you need, but it will be possible for some business owners.
Exemptions typically cover clothing, household furnishings, a modest vehicle, some equity in a residence, and a retirement account. Other exemptions exist, too. For instance, many states let filers protect "tools of the trade," which are usually personal assets used by an individual to carry on a trade or profession.
Think of a mechanic's tools, a work truck, or a lawyer's library of law books. A wildcard exemption —an exemption that lets a filer protect any item of the filer's choosing—can come in handy for assets that aren't covered by exemptions, such as corporate shares.
The value is usually limited to a few thousand dollars. The structure of the business will help you determine what you'll need to protect to prevent losing the company.
For a comprehensive evaluation of your business in Chapter 7 bankruptcy, you should consult with a bankruptcy attorney before filing. A small number of states have exemptions that could cover some specific business assets, but they're rare. Here's what you'll need to exempt. You'll need to consider what will happen to the assets that you can't protect. The trustee has two choices in dealing with a nonexempt asset : sell it or abandon it.
Before selling an asset, the Chapter 7 trustee will decide whether selling will bring in enough money to benefit the creditors. If the trustee can't realize enough money to make it worthwhile, the business or asset will be considered "burdensome to the bankruptcy estate," and abandoned back to the debtor.
If you'd like to stay in business, you might have a better chance of doing so if you qualify to file for Chapter 13 bankruptcy. If the company has value or assets that you can't exempt, you can pay that value to your creditors over a Chapter 13 three- to five-year repayment plan. Get a free consultation to see if you qualify.
For instance, the filer might hope it will help them wipe out debts that don't go away in bankruptcy. Filing the wrong chapter type. For most consumers, the logical choices are Chapter 7 bankruptcy and Chapter 13 bankruptcy. Each type has specific benefits that solve particular problems. Also, property is treated very differently in each chapter. For example, if you want to save your home from foreclosure, Chapter 13 might be your best bet.
If you have low income and no assets, Chapter 7 may be the way to go. If you file for the wrong chapter, you might lose valuable property, or end up not discharging wiping out certain debts Filling Out Bankruptcy Paperwork Even if the debtor chooses the correct chapter, pitfalls abound in the paperwork phase of bankruptcy.
Failing to file required documents. Bankruptcy is form-driven. You'll have to complete a lengthy federal packet , and, in some cases, your court will have local forms, as well. Many self-represented bankruptcy debtors don't file all of the required bankruptcy documents, which, if not remedied, will result in a dismissal of the case. You can find information on the forms you'll need, filing fees, and more in our Filing for Bankruptcy: Getting Started section. Failing to protect property.
You don't lose everything in bankruptcy. Property exemptions play a vital role in protecting property in both Chapter 7 and Chapter 13 bankruptcy. But, many pro se filers don't list the proper exemption to keep an item of property, and, as a result, risk losing it.
If you stand to lose valuable property like your home or car or property you care about like a family heirloom , a visit to an attorney might be well worth the money. Failing to take required education courses. In Chapter 7 and Chapter 13 bankruptcy filers must receive credit counseling from an approved provider before filing for bankruptcy, and complete a financial management course before getting a discharge.
Many pro se debtors, confused about these requirements, fail to file the proper certificate, which can result in a dismissal of the case. Motions or Adversary Actions Most Chapter 7 cases move along predictably: you file for bankruptcy, attend the meeting of creditors , and then get your discharge.
For instance, many self-represented filers: don't understand the significance of motions for adversary actions can't adequately defend against an action seeking to deny discharge, and sometimes file illegible or handwritten motions or responses.
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