Do I Lose All My Stuff in Bankruptcy?
Bankruptcy Exemptions: The Stuff You Keep
The stuff you get to keep in bankruptcy is called exemptions. Exemptions are defined in state statute. Every state has their own exemptions. Arizona's exemptions can be found here. The state exemptions are also allowed in bankruptcy. In most situations you are able to keep your house, car, personal belongings, retirement and/or pension, and so forth. Bankruptcy exemptions vary by state. In the state of Arizona the exemptions are the same whether you are in Tempe, Phoenix, Glendale, or Mesa.
Chapter 7 Bankruptcy Exemptions
Bankruptcy exemptions determine what property you are able to keep when filing a Chapter 7 Bankruptcy. Exemptions include your house, car, 401k/IRA, personal property or other belongings. Most people do not have property that is not exempt. If property is not exempt, the trustee can take it, or ask you to pay the amount not exempt. This just does not happen to most people. If you have property that is not exempt, your bankruptcy lawyer will tell you. You can then plan what to do with the property before you file bankruptcy.
An Example of how Chapter 7 Bankruptcy Exemptions Work
This is an example of property that is not exempt in chapter 7. The Arizona state bankruptcy exemptions allow for $6000 equity in a car. Equity is the difference between what you owe and what the car is worth. So, if you have a car that you owe $8000 and it is worth $18,000, there is $10,000 in equity. Only $6000 is exempt. Therefore, you would want to know about the additional $4000 in equity before you file. In the case of a chapter 7, you would have a few options. You could offer to pay the $4000 to the trustee. Or, you could get another loan against the car to destroy the $4000 of non-exempt equity. Be careful spend the $4000 before you file. Cash is only exempt up to $300.
Chapter 13 Bankruptcy Exemptions
Bankruptcy exemptions can be used in Chapter 7 as well as Chapter 13 bankruptcy. Just like in chapter 7 bankruptcy, most people do not have property that is not exempt. If you property that is not exempt, your bankruptcy attorney will be able to help you plan for it before filing chapter 13 bankruptcy. If you have assets that are not exempt, the non-exempt amount would be able to be paid with your chapter 13 payments.
An Example of how Chapter 13 Bankruptcy Exemptions Work
Let's us the chapter 7 bankruptcy exemptions example from above. If we have a car that is worth $18,000, but we only owe $8000. The Arizona bankruptcy exemption is $6000. We have $10,000 equity in the vehicle. Therefore, there is $4000 worth of non-exempt asset. In a chapter 13 bankruptcy, you would have the option of paying that amount with your chapter 13 payments. For example, if it was a 40 month plan, you could pay $100 every month for 40 months. In a chapter 7, the trustee is not waiting for the payment.
Before filing for bankruptcy, understanding exemptions and what property is exempt in your state is important.
What if the Bankruptcy Exemption Amount is Close to the Value
Many times you can keep your property if the exemption amount is only slightly less than the value or equity of your stuff. This is because the costs involved in selling those items makes it just not worth it for the trustee. The trustee makes the final decisions pertaining to your valuable property.