One question we get asked quite a bit is “can the bankruptcy court take my stuff?” As with most questions in the legal world, the answer is “maybe.” There are many misconceptions about what assets a debtor can keep in a bankruptcy and I hope this article helps dispel some of the myths.
Chapter 7 Bankruptcy
Everyone filing a Chapter 7 Bankruptcy gets to keep, free and clear, $1000.00 in personal assets and $1000.00 in equity in a vehicle. Those debtors NOT claiming a homestead exemption are also provided another $4000.00 in asset protection. In other words, if you do not own a home, you get an extra $4000.00 that is shielded from the Court.
$1000.00 in equity in a vehicle is not very much. If your vehicle is paid off, it is very likely that it will exceed that $1000.00 cap in value. This means that you may be required to pay money to the Bankruptcy Trustee in order to keep your vehicle. Generally, the Trustees demand their money within 3-6 months. If you do not pay, the Trustee can actually seize your assets. This can be difficult for many debtors.
They money collected by the Trustee is disbursed to the debtor’s creditors on a pro-rata basis. Let’s look at two examples to help illustrate the point:
John rents where he is living, has $300 in his bank account, $1000 in jewelry, $500 in clothes and furniture, and owes $10,000.00 on his car that is worth only $7000.00. Will he have to pay anything to a Bankruptcy Trustee? Nope. He is entitled to $5000.00 in personal assets protected (his assets add up to $1800) and he is entitled to $1000.00 in equity in a vehicle (his vehicle has no equity).
Greg owns his home, has $2000.00 in the bank, $3000.00 in tools/jewelry/guns, $1200 in clothes and furniture, and owns his car worth $6000.00 free and clear. Will he have to pay anything to a Bankruptcy Trustee? Absolutely! He is entitled to only $1000.00 in personal assets (because he is a homeowner) and only $1000.00 of the $6000.00 in car value is protected. So if Greg wanted to keep all of his stuff, he would have to pay $10,200.00 within 3-6 months on filing his Chapter 7! Yikes! Chapter
7 might not be the best way to go for Greg.
Chapter 13 Bankruptcy
The same limits that apply to a Chapter 7 Bankruptcy apply to a Chapter 13 Bankruptcy. Also, a Chapter 13 Trustee is entitled to whatever a Chapter 7 Trustee would have received had the case been filed as a Chapter 7. However, the Trustee will accept payments over 3-5 years in Chapter 13.
If we look back at Example #2 above, Greg could file for Chapter 13, get rid of his debts, work out a repayment of around $200.00 per month for 60 months, and still keep all of his assets. This seems like a much more manageable plan for Greg.
So can you lose your assets in a Bankruptcy? It is possible. At the Berkowitz & Myer, we will carefully devise a plan to best assist you with your debts. This will involve in-depth discussions of your assets and how they will best be protected during the bankruptcy process.
Contact us at any time at 727-344-0123 to discuss your personal situation so we can get started helping you. You can also fill in the form on the right side of this page and we’ll contact you promptly.