What can you keep in bankruptcy?

When you file for bankruptcy, many people have the mistaken idea that you lose everything at once. However, this is not necessarily the case. The basic idea of bankruptcy is that you are given a chance to start over and rebuild. The idea is that if you have absolutely nothing, then it is not likely that you will be able to recover. So what can you keep in bankruptcy?

In a Chapter 13 bankruptcy, there is a restructuring of the obligations. Usually you keep all the debt, only at a reduced amount, reduced interest rate, or negotiated settlement. In this case, since you are keeping all of your debt, you also keep all of your assets. This is a generally acceptable formula. The court will take your assets into account when creating the Chapter 13 agreement.

In Chapter 7, there are still some assets that you may be able to keep. For example, if you are purchasing a home, you may be able to retain possession of it. There are, of course, conditions to this provision.

• Equity. Generally speaking, it’s a good thing to have equity in your home. However, if you’re filing for bankruptcy, it’s not so good. If you have too much equity, then you will have to sell your home to get the equity to pay your creditors. However, if you have little equity, then you will likely keep your home.

• Payments. The one provision is that you need to be able to keep making payments regularly and on time. If you have lost your job or had a reduction in means, then the payments may be beyond your ability to pay. In this case, you will not be able to keep the home. However, the majority of people filing for bankruptcy are able to stay in the home and continue making mortgage payments.

You will also be able to keep other Exempt assets. These exemptions vary by state, and so some will not apply to you. Additionally, it matters what state you lived in when for the majority of the 180 days prior to filing.

• Vehicle. Many states have a vehicle exemption for a car not exceeding $2,500 or some other specified value. If two people are filing jointly, then the allowance is probably going to double.

• Property. Generally, the following properties are exempt. One refrigerator, a freezer, stove, microwave, sewing machine, carpets, food, clothing (not furs or jewelry, but basic clothing) and beds, including bedding.

Again, exact provisions vary by state, but all allow you to keep the items necessary to survive and recover.