The process of bankruptcy sends many debtors into panic mode because of a popular false impression about bankruptcy. Too many debtors think that filing for bankruptcy means that they've to give up all of their assets, including their house and car. The truth is that, depending which chapter of the bankruptcy law a debtor files for and what state they reside in at the time of bankruptcy, debtors can keep some or all of their possessions by listing them as exempt property.
Exempt Property Under Chapter 7 Bankruptcy Protection
Chapter 7 is known as the down-and-dirty bankruptcy chapter. This chapter liquidates all non-exempt possessions and turns the proceeds over to creditors. All other debt that cannot be confident under this chapter is then formally discharged, which relieves the debtor of their obligation to repay them. Chapter 7 bankruptcy protection works very well for debtors who are faced with big levels of consumer debt such as credit card debt. The debtor can list property as exempt when filling out the proper forms to file in bankruptcy court for the district in which they reside. There are not the same schedules, or documents, for the debtor to enter in their possessions and liabilities. Depending on the debtor's state, the exemption rules will be really different. Each state has its own set of differentiated classes of exempt property, ranging from garnished wages to the debtor's home. The positive news is that the state and federal exemption system usually results in no possessions being sold to repay creditors. IRA, 401(k)s, and other pension money and retirement accounts are exempt, as well as any home equity and personal results such as cars, computers, books, etc. The point of a bankruptcy is to give the debtor a fresh start, and that does not happen if the debtor is left with nothing to begin with.
Exempt Property Under Chapter 13 Bankruptcy Protection
Chapter 13 is different from chapter 7. Under chapter 13, the debtor keeps all of their assets whether they are exempt or not. This is because chapter 13 is designed to set up a repayment plan that the creditors must accept so that the debtor can repay their debts. Chapter 13 thus stops the liquidation of possessions because the law stipulates that chapter 13 is meant to help the debtor repay their creditors in a fair and reasonable way. As in chapter 7, the debtor files schedules listing the recent state of their finances with the bankruptcy court. At the end of the proceedings, the debtor's payment plan is usually approved by the court and put into action. In most cases, no matter whether the bankruptcy in question is chapter 7 or 13, debtors keep all of their possessions. In special cases, such as cases where the debtor is fairly wealthy or they have valuable assets, the court may liquidate them if the debtor files for chapter 7. What the debtor needs to remember is that they're filing for bankruptcy to get a fresh start. The bankruptcy court is more than happy to allow them to do that.
