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Do I have to give up my possessions in bankruptcy?

On Behalf of | May 27, 2024 | Bankruptcy |

When people think about bankruptcy, they may assume that they must give up everything they own in order to have a fresh start. This is not the case, as most people will be allowed to keep certain assets even if they decide to file for bankruptcy.

Chapter 7 bankruptcy

If you file for Chapter 7 bankruptcy, you must liquidate certain assets to pay off your debts. However, you may be able to protect your property under federal or state bankruptcy exemptions. The courts generally allow people filing for bankruptcy to keep assets that are typically considered necessary.

Several potential exemptions allow you to protect a specified amount of equity in certain types of property. Here are a few of the most common exemptions:

  • Homestead exemption: Protects equity in your home.
  • Motor vehicle exemption: Protects your vehicle.
  • Wildcard exemption: Protects personal property of your choice.
  • Tools of the trade: Protects tools you need for work.
  • Personal property exemptions: Protects certain security deposits, burial plots, etc.
  • Retirement accounts: Protects pensions/retirement accounts.

Non-exempt property, or property not covered by an exemption, will be sold off to pay creditors. You will typically have to give up luxury items, such as a stamp collection or vacation home.

Chapter 13 bankruptcy

If you file for Chapter 13 bankruptcy, you will follow a repayment plan to repay your debts over time. Therefore, you will generally get to keep your home and other property, but you must pay creditors for nonexempt property if you want to keep it.

Many people avoid filing for bankruptcy to avoid losing their most prized possessions. However, there may be a way to keep at least some of your possessions under both Chapter 7 and Chapter 13 bankruptcy.