What Happens to Your Property in a Bankruptcy?

Bankruptcy is an opportunity to get a financial fresh start but it doesn’t necessarily mean that you have to start completely from scratch with no possessions if you file.  If you file for bankruptcy, you can rest assured that regardless of how much you might owe, you will be able to keep some of your property after filing.  This is done through a process called “exemptions,” and although states vary on their rules regarding exemptions, all states have a certain amount of property that you can keep after filing bankruptcy. 

There are actually two different sets of exemptions—one is the national bankruptcy code exemptions (as stated in Section 522 of the Bankruptcy Code) and the other is the list of state exemptions that are specific to your state.  Some states allow debtors filing bankruptcy to choose between the state exemptions and the Federal ones, while other states completed opted out of the Federal exemptions and solely offer their own state exemptions. 

Your bankruptcy attorney will be able to assist you with determining the amount of exemptions that are allowed by your state, and these exemptions are usually expressed in dollar amounts.  When determining the amount of money an object or property is worth, the equity is used.  For example, if a state offers $10,000 in exemptions for a debtor who is filing bankruptcy, that debtor’s assets would receive a value that is based on their equity or what would that asset would sell for if it were listed on the open market in its current condition.  (Translation:  That $2,000 TV you bought two years ago?  Now you can only get $300 on craigslist?  For bankruptcy exemption purposes, it’s worth $300.

It’s also frequently the case that a debtor will get to retain property that is valued at more than the exemption that is allowed, simply because the cost that would be involved in the trustee taking possession of the asset, selling it and distributing it to creditors would be more than the asset is worth.  The amount and type of exemptions vary depending on whether you own your own home, are married and other factors.  Consult a qualified bankruptcy attorney for your specific exemptions, but ninety percent of our clients get their fresh start while keeping their home and maintaining their vehicle.