How to Keep Your Property During Bankruptcy

During a bankruptcy, properties owned by the debtor are seized by the bankruptcy court so they can be liquidated to repay the debts you owe. This is the goal of bankruptcy. However, federal and state bankruptcy laws provide for exemptions, which protect specific types and amounts of property. This is one way to keep your property during bankruptcy.

What Are Bankruptcy Exemptions?

Bankruptcy exemptions are a set of laws that state exactly what a consumer can keep and up to what value he or she can keep of that asset. The Homestead Exemption is one example. In this exemption, each state lists how much equity, or un-mortgaged value, a home can have in order to be protected by from bankruptcy.  If your home is worth more than the exemption limit, you may be forced to sell the home so that the proceeds can be used to repay your creditors. In most cases, this is not the case.

Types of Exempt Property

Although the homestead exemption covers your actual home in bankruptcy, properties such as your vehicle and business tools may also be protected. The amount and type of exemptions available to you are determined by your state’s bankruptcy laws or by federal exemptions if you decide to apply these instead of your state’s exemptions. Some types of exempt property include:

• Automobile exemptions
• Household goods
• Household furnishes
• Assets in retirement
• Business tools
• Pensions and other types of government benefits

This is not an exhaustive list of protected property. In many states, if you have property that is valued under the exemption dollar amount, you will be able to keep it. However, if you have property valued over this exemption amount, you may wish to reaffirm the debt.

What Is Reaffirming?

When you reaffirm a debt, this means that you agree during the bankruptcy process to repay the debt in full, according to the original terms of the loan. The lender must agree to allow you to keep making payments on the debt. This is an ideal way of protecting homes and automobiles that are over the exemption limit that you wish to keep. However, you should ensure you can afford to keep making monthly payments on time to these lenders prior to reaffirming the debt.

Seek Legal Advice

Since bankruptcy proceedings can be quite difficult to navigate, it is best to use an attorney to help you manage bankruptcy properties. An attorney will give you advice on when to save assets and when not to, as well as how to reaffirm the debts or how to choose between federal and state exemption limits.