The idea behind a Chapter 7 Bankruptcy is a “fresh start.” But the Court will not allow people with a lot of money or assets to keep all their personal belongings and file bankruptcy and not pay their creditors. So, the first question is, “What assets can you keep after you file bankruptcy and what assets must you give up”?
In bankruptcy you generally can retain:
- $1,000.00 of personal property or $4,000.00 of personal property if you do not own a home with equity in it.
We use garage sale figures – not new or retail!
- Your home – no matter how much equity. Florida is very good for this.
- $1,000.00 in car equity.
- 401ks , IRAs and other pensions.
So what happens if you go beyond the exemptions? The Court appoints a trustee and the trustee can take property beyond the exemptions, sell it and give the proceeds to your creditors.
The most common question we get: Will I be able to keep my car???
Generally the answer is yes.
If you have your car paid off and the value is under $10,000.00, usually, the trustee will either let it go or enter into a payment plan with you in which you pay off the equity to the trustee over time.
If you have a bank loan – it’s a little tricky but you can still keep your car. After you file, the loan is gone – discharged in the bankruptcy. But you and the bank can then enter into a “reaffirmation” agreement in which you sign a new contract with the bank to keep the loan and the car.
The next most common question is: Can I keep my home?
This is a little more difficult because your home loan is actually two parts – the promissory note and the mortgage. The Note is the promise the pay the money and the Mortgage is what allows the bank to foreclose on the property if you don’t pay the Note.
The bankruptcy extinguishes the Note. But the mortgage is still there. So you HAVE TO be current on your payments to have a good chance at a reaffirmation with the bank. But yes, you can, likely, keep your home.
THE AUTOMATIC STAY
One of the nice things about filing bankruptcy is the automatic stay. Filing bankruptcy will stay all collections and lawsuits. That means it all stops – at least for a time. Even foreclosure actions are put on hold until after the bankruptcy is figured out.