Keeping Your House And Car In Bankruptcy
It is a myth that you lose all your assets when you file Chapter 7 bankruptcy.
To the contrary, as I have explained, with proper legal counsel in most cases you can keep ALL of your assets in Chapter 7, including your house and vehicles.
There are two main factors involved in determining whether you can keep an asset such as your house or car.
The first is whether the Trustee will sell it and the second is whether any creditor secured by that property will “take” it.
You Can Keep Your House and Other Property, But Only If…
In every Chapter 7 case a “Trustee” is appointed. Part of the Trustee’s job is to liquidate (sell) any assets for which he/she can obtain money to pay creditors of the bankruptcy estate.
Thus, for example, if you have a car that is worth $20,000 and you owe $10,000, absent any other considerations, the Trustee would likely sell that car.
Fortunately, however, there is this thing called “exemptions” which protects a certain amount of value in your various assets.
Each state has its own set of exemptions, and there is also a federal set of exemptions as well.
How do you know whose exemptions apply in your case? Read my page on bankruptcy exemptions.
So, if the applicable exemptions laws in your case allow $10,000 for a vehicle, then you’re safe from the Trustee selling it!
Similarly, if the car was worth $20,000 but you owed $30,000 on it, you would not need to use any exemptions to protect it because there is no value to protect (because if it was sold, the secured lender on the property would get paid first).
Same thing with a house or any other type of property.
But It Can Get Tricky
There are times when you may be able to remove liens from your house or other property, such as judgment liens.
Doing this, of course, can affect the equity in the asset in question and lead a to the Trustee seeking to sell that property.
(You can also remove consensual junior liens, such as 2nd mortgages, under specific circumstances in a Chapter 13 or Chapter 11 case, but you don’t risk losing any assets in either of those chapters).
Knowing how to properly value your assets is obviously important in determining whether there is a risk of the Trustee selling it.
So is knowing which exemptions apply and how to correctly apply them.
Knowing the individual trustees can also be very important, as they all have different ideas of when something should be sold, and some will even cut deals with lenders to accept less money so the Trustee can sell a house.
This is yet another example of why having an experienced bankruptcy attorney is critical.
You Must Stay Current With Payments Owed On Your Home or Vehicle
Regardless of what the Trustee may or may not do, if the particular item has a secured lien against it (such as a mortgage for a home, or a lienholder for a car), and you are required to make payments to that lienholder, then you must stay current with the payments to them or they can take steps to take and sell the item to cover what is owed to them.
With real estate, that’s done via foreclosure. For vehicles, it’s the dreaded repossession.
This seems obvious, but there are those who think you file bankruptcy and get to keep all your house and other secured assets without having to pay anything further on them.
That would certainly be nice, but it’s not reality.
Image Courtesy of M Glasgow