The bankruptcy code was revised in 2005; however, there are still numerous statutes to protect individuals filing for personal bankruptcy. The days of debtor’s prison are gone, unless someone attempts any form of fraud when filing bankruptcy. In its place is a set of standard guidelines to help those overburdened with debt to get some degree of relief in order to start afresh. In light of that goal, chapter 7 bankruptcy has a number of exemptions protecting personal property from liquidation.
Steps to Chapter 7 Bankruptcy
The first step for anyone considering this serious step is to consult an attorney to help them determine if there are another other alternatives. Following that, a filer must determine whether to file for chapter 7 or chapter 13 bankruptcy. Many debtors would prefer chapter 7 because it often results in the discharge, or erasure, of more debt; however, it has become more difficult to qualify. Those that do qualify should proceed with these steps:
- Complete credit counseling through an agency approved by the United States Trustee. A list of approved agencies can be found at the U.S. Department of Justice.
- Complete a bankruptcy petition including complete information about their property, income and expenses, debts, exemptions, and assets that have been used, sold, given away, or spent in the last two years.
- During an automatic “stay,” or hold, on all debt collection activity the bankruptcy process is completed.
- A bankruptcy trustee determines which debts can be paid from the filer’s assets.
- The trustee also determines what property is exempt and what property can and should be liquidated to pay additional debt.
- The trustee calls a creditor’s meeting in which the filer is questioned, under oath, about their assets, property, debts, and exemptions.
- The remaining debts are discharged and the debtor is free to begin to rebuild their credit.
- The debtor must continue to pay secured debts if they wish to protect them from foreclosure or repossession. Even though the debt may be discharged, if the property was security for that debt, the lien holder may reclaim their property if the debtor defaults.
Property Exemptions
There are some types of property that are exempt under federal and state bankruptcy laws. Federal laws, however, may only be applied in some states. The remainder of the states have their own exemptions which take precedence. Depending on the value of an exemption and the equity a filer has in that property, they may be allowed to keep it. Exemptions are often similar, covering a number of general areas essential to an individual or family’s survival:
- Homestead
- Automobile, tools of the trade, various percentages of earned but unpaid wages
- Household goods, clothing, and furnishings
- Burial plots
- Certain limits of jewelry, family photographs, and memorabilia
- Health aids
- Various types of pensions, IRAs, insurance, public benefits, judgments, and recoveries up to specified limits
- Alimony and child support income
Getting Legal Help with Personal Bankruptcy
While filing for personal bankruptcy is not as complex as a business bankruptcy, there are still numerous calculations and decisions to be made. In addition, there are many benefits available for those who know how to find and apply them. Exemptions are some of the key elements in making a bankruptcy work for the individual, saving their home and property from liquidation. However, without qualified legal help from a bankruptcy lawyer, they may not realize all the benefits available.
