If your finances are a mess and you don’t know how to get out of debt, filing for bankruptcy might solve your financial problems. You may have concerns about seeking bankruptcy, and rightly so, as it is a decision that you should not make lightly.
As with anything else regarding the law there is a lot of misinformation about bankruptcy that may wrongly hold you back from filing. You may have well-intentioned family and friends who have perpetuated certain bankruptcy myths that have made you cautious about filing or you may have read something online which may not give the whole truth about the process.
In this blog post, we’ll dispel the top bankruptcy myth – that you will lose everything – and help you understand what can happen to your property when you file for bankruptcy.
Bankruptcy Truth About Keeping Property/Assets
One of the biggest myths about bankruptcy is that you will lose all your property/assets when filing bankruptcy. While it is true that in some cases the bankruptcy trustee appointed to your case to repay creditors may liquidate some assets, there are many exemptions that protect your most important belongings. Additionally only one kind of bankruptcy, Chapter 7 bankruptcy, sees you run the risk of losing assets that you do not want to.
Many states (including Alabama) have a law called “Asset Protection” that allows you to keep certain property, and exempt it from being sold by the bankruptcy trustee. Exemptions vary from state to state. In most states, exemptions may help you keep your home, your car, and your retirement savings. You also may keep any property that is considered “necessary for your livelihood,” such as tools or equipment needed for your job. Some exemptions help protect specific types of property, such as furniture, or a vehicle, up to a set dollar amount. Sometimes an exemption protects the entire value of the asset, but sometimes there may simply be too much value to completely exempt it. You may ask how much personal property can be protected, and the answer is that it can vary. Most states have different kinds of exemptions which protect either personal property or real-estate. In total Alabama allows a debtor to protect $9,400 of personal property and $18,800 of equity in their home (as of when this blog article was posted). In cases where a married couple files jointly they each get their own separate exemptions which can significantly increase the amount of property they can exempt when combined properly.
Despite what you might think even if some of your property is not protected under a bankruptcy exemption, you may still be able to keep it. The bankruptcy trustee may feel that some of your nonexempt property has little intrinsic value, or it is overly encumbered with debt and therefore would not generate much value in a sale. Additionally, if you file Chapter 13, you can keep nonexempt property by paying non exempt the value of it over the length of your Chapter 13 bankruptcy case, typically 3 to 5 years. It should be noted however that liquid assets like cash may have to be paid directly to the trustee’s office if they are not exempt and that policies around such assets vary trustee to trustee. In Chapter 7 the trustee may offer to allow a debtor to keep an otherwise unprotected item by paying the value to the trustee in lieu of liquidating it, though this is solely up to the trustee’s discretion.
Get Help Filing for Bankruptcy
Knowing exactly if your property/assets are exempt or nonexempt when filing for bankruptcy depends on how bankruptcy laws apply to your specific financial situation. So, if you do not have a good understanding of all the many bankruptcy laws, you may be placing yourself at risk for losing assets that may actually be protected. This can be a stressful and time consuming process to determine what is and is not protected. However, an experienced bankruptcy lawyer would know what bankruptcy laws pertain to your financial situation and the best way to help you get a financial fresh start without the risk of losing things important to you.
Brock & Stout has over 25 years of experience helping clients successfully file for bankruptcy. If you are contemplating filing, but are worried about losing everything, contact us today for a free evaluation of your financial situation. Let our family help your family strengthen your chance of lifting the burden of debt from your shoulders.