Do I have to give up my possessions in bankruptcy?
Financial challenges can happen to anyone in New York. This is especially true given the unusual circumstances of the past two years. Job loss, massive medical bills, using credit cards to make up for shortfalls in income and more have contributed to excessive debt. For those who are unable to keep up with their payments, the constant scrutiny, endless phone calls from debt collectors and fear as to what the future might hold can be overwhelming. Bankruptcy might be briefly considered, but a lack of understanding as to what the entire process entails and fear as to what they might lose is a hindrance. Knowing what bankruptcy does and how it impacts a person’s property is a first step to overcoming that fear and moving forward with a case.
How does bankruptcy impact retaining possessions?
When filing for personal bankruptcy, there are two options: Chapter 7 and Chapter 13. Chapter 7 is known as a liquidation bankruptcy. Liquidation is justifiably perceived as a person’s property being taken and sold to pay back creditors. However, those whose property is categorized as “exempt” will not lose it. Depending on value, a person can keep an automobile, clothing, household goods, some jewelry, items that are used professionally and public benefits. If there are valuable collectibles, family heirlooms, a second vehicle that is not deemed a necessity, investments and cash, it will probably not be exempt and will be used to repay creditors. That said, when the bankruptcy trustee looks at the person’s property and exempts most assets from liens and distribution, they will be declared “no asset” and the person will clear the unsecured debt like credit cards and medical expenses.
Chapter 13 is referred to as a “wage earner’s plan” because people who use it must have some form of income to cover the expected monthly payments that will be made to a trustee. Those payments will then be distributed to creditors. Debtors using this process do so to retain various properties like homes, automobiles and other items that would be lost in a Chapter 7. It is essentially a consolidation loan where the debts are combined into a manageable monthly payment. It generally lasts for three or five years. If, for example, a person’s home is in foreclosure, they can file for Chapter 13 to avoid losing it. As time passes, they can catch up to their mortgage payments and keep the property.
Bankruptcy can be beneficial to those who want to keep certain properties
The misconceptions about bankruptcies are many. People who are reluctant to file because they think they will be left with absolutely nothing are mistaken. Both Chapter 7 and Chapter 13 allow people to retain various properties depending on the circumstances. Still, there are requirements like the means test and taking a credit counseling and debt management course. The amount owed is also important when making a choice between Chapter 7 and Chapter 13.
The situation will dictate which chapter is preferable for the individual. A person who has very little and simply wants to eliminate unsecured debt would likely be better off filing for Chapter 7 bankruptcy while someone who has property they want to shield and has a job would benefit from Chapter 13. Regardless, knowing for certain what properties can be kept or might be lost requires in-depth guidance. A successful bankruptcy filing can end the constant worry about finances and help with getting into a better position. Consulting with professionals can provide advice with what steps are available and how to proceed.