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The last time I wrote about bankruptcy, I questioned whether or not it was really the answer for someone with high debts.
My conclusion was that filing for bankruptcy was probably not a good idea.
In case you either decided to ignore that advice or had no other choice, you will need to know about bankruptcy exemptions.
Bankruptcy exemptions are items that are exempt from being sold in order to discharge your debts.
Did you really think you got to keep your $250,000 home and your Lexus?
Not if you have a lot of equity in those items; and certainly not without continuing to make payments.
What are Bankruptcy Exemptions?
Bankruptcy exemptions vary from state to state, and 15 states (plus Washington DC) allow you to choose between state and federal bankruptcy laws when claiming your exemptions.
These exemptions are basically items that you need for a fresh start after your bankruptcy is discharged.
Items that are not exempt can be sold, and the money can be used to pay your creditors.
In general, most states allow you to keep much of your personal property, particularly that which has little or no value. You can even keep collateralized property in certain circumstances (of course, you have to reaffirm the debt). Source
The gist of the matter, however, is that if you are really broke or destitute, you will be allowed to keep most of your items. If you have assets and a lot of property, you will have to give some things in the bankruptcy process.
Since the amount of assets you have will dictate how many things you can keep in a bankruptcy, they will also dictate the type of bankruptcy you should file.
Types of Bankruptcy
You should file Chapter 7 bankruptcy if you have very little property or money and are having trouble meeting your basic needs. Chapter 7 bankruptcy will discharge your debts quickly and make creditors leave you alone.
UScourts is a great site that explains Chapter 7 bankruptcy.
You should file Chapter 13 bankruptcy if you have equity in your home and other property that you do not want to give up. Chapter 13 is for people who have a decent income but cannot keep up on payments and debts.
Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause. Source
A bankruptcy lawyer will analyze your situation and help you decide what kind of bankruptcy is right for you.
Be aware that there are unscrupulous lawyers who will try to promise you more than is legally possible. Be very careful when choosing a bankruptcy lawyer. Find a lawyer who is experienced in bankruptcies in your area and who will give you legitimate references that you can call.
How to select a bankruptcy lawyer (…plus questions to ask a bankruptcy lawyer)
I have been a certified tightwad striving for financial freedom since I became pregnant with my first child — and I decided to find a way to stay home with him full-time. I enjoy sharing my personal experiences in my journey back to financial health and planning for a future — which will include sending 2 kids to college and early retirement.