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When folks learn about Chapter 7 bankruptcy law, the first thing they should understand is that it means liquidation. In legal terms, liquidation is the sale of assets to try to satisfy as many of the debts owed to one's creditors as possible.
This does not mean, however, that every single thing you own will be sold. Depending on your circumstances and the state laws where you live, you may be able to hold onto a reasonable portion of your assets. Let's look at some of the categories of assets a Chapter 7 filer might get to keep if the court grants their petition.
Necessities and Work-Related Items
In the spirit of not rendering petitioners destitute, the court allows them to apply for exemptions. They have to list the items they believe are exempt in their petitions. Usually, a court-appointed trustee or a judge will then determine whether an item is exempt.
The most commonly exempted items are necessities. For example, you're still going to need clothing, furniture, and dinnerware.
Likewise, the court will typically exempt work-related items. A contractor's tools, for example, are usually exempt as long as they're currently plying their trade. Similarly, most people's vehicles they use to drive to and from work are exempt.
Bear in mind the trustee and judge have broad leeway to say no to requested exemptions. You may not be able to sneak a fancy sports car past the system by claiming it's your daily driver for work.
Secured Assets
Assets that are backed by real property are not covered by Chapter 7. This mostly means the assets associated with current mortgages and auto loans. If it is within your means to keep paying on these items, you can keep them. The court will not liquidate them because they're still considered the lender's property.
Notably, the lender can repossess these assets if you stop paying. However, it may be possible to file a subsequent Chapter 13 petition after your Chapter 7 case concludes. This may allow you to modify the amount you owe, make a new payment plan, and keep your house or car that's currently on a loan.
Wildcards
Some states allow wildcard exemptions. In these states, you can exempt all assets up to a certain combined value. If your state allows a $10,000 wildcard exemption, for example, you could hold onto $8,000 worth of luxury items. You'd simply have to list them as assets, request an exemption, and not exceed the limit with additional items.
Share29 September 2020
