Some people believe that if you file for Chapter 7 bankruptcy, you automatically get to keep all of your property. Although this is generally the case, it isn’t always so. It is true that you get to keep certain items when you file for Chapter 7 bankruptcy. But what you get to keep depends on the exemption laws in Oklahoma.
How Exemptions Work in Chapter 7 Bankruptcy
Here’s how Chapter 7 bankruptcy works: You get to discharge (cancel) most or all of your unsecured debts. In exchange, you turn over certain property to the bankruptcy trustee. The trustee liquidates (sells) your property, and uses the proceeds to pay off a portion of your unsecured debts.
However, in Oklahoma, the trustee can only touch property that is not protected by Oklahoma exemption laws. Those laws list certain types of property that are protected in bankruptcy. For some of those items, all of your equity is exempt. For others, you can only exempt equity up to a certain dollar amount.
What Property Is Protected by Oklahoma Exemption Laws?
Here are a few of the most commonly used exemptions:
In Oklahoma, you can keep an unlimited amount of equity in your home, although if you live in a city, town, or village, you can only protect 1 acre.
You can keep the money in most types of retirement plans.
Oklahoma exemption laws protect most of your household goods and furnishings, and even a church pew.
Motor Vehicle Exemption
In Oklahoma, you can exempt up to $7,500 of equity in your car, van, motorcycle, or other motor vehicle. This means that you can keep your car if:
- it’s worth less than $7,500, or
- It’s worth more than $7,500, but with your car loan your equity in the car is less than $7,500 (your equity is the fair market value of your car minus the balance on your car loan)
If you don’t fit into one of the above categories, you might lose your car in Chapter 7 bankruptcy.
Example. Let’s say you own, free and clear, a car worth $20,000. The bankruptcy trustee would sell your car, give you the amount of exempted equity ($7,500), and distribute the remaining proceeds to your creditors.
If you want to keep your car, the trustee might let you pay the difference in cash (in this case, about $12,500) or exchange $12,500 in other exempt property.
Disclose Everything to Your Attorney and the Bankruptcy Court
When you file bankruptcy, tell your attorney about everything that you own so that you aren’t broadsided at court and end up having to give a lot of things to the trustee that you hadn’t counted on getting rid of.
If you stand to lose a valuable item (for example, your car that you need for commuting to work), you may want to explore nonbankruptcy alternatives to your financial woes.