The myth that you will lose all your property from filing Chapter 7 is common. Unfortunately, it seems that this fear may be caused by simple terminology.
A Chapter 7 bankruptcy filing is technically considered a liquidation. However, the vast majority of cases are considered “no asset” cases, in which the value of your assets has no impact on the case, and no property is lost. This is due to exemptions.
What Is an Exemption?
An exemption is a state or federal law that allows you to protect a specific amount of value in your assets. For example, Massachusetts state law allows you to protect up to $7,500 in equity in your vehicle ($15,000 if you are handicapped or over the age of 60). Unless you have a newer vehicle without a car loan, odds are you may not have this much equity in it. Even if you do, though, there is also a “wildcard” exemption of up to $6,000 that can be applied to any asset. Therefore, depending on the value of your other assets, you may be able to fully protect a vehicle with up to $13,500 in equity.
There are specific exemptions available for many other items too, including cash, bank accounts, furniture, clothing, and cars. If you own your home and have a Declaration of Homestead filed, then you may be entitled to an exemption of up to $500,000.
There are separate exemption rights under state and federal laws, and you are only allowed to use one set. Depending on your circumstances, then, it may be more beneficial to use either state or federal laws.
What If My Exemptions Aren’t Enough?
If the available exemptions are not enough to protect all of your assets, then you may still have several options to consider. You might choose to file a Chapter 7 anyway, and attempt to “purchase” the asset back during the case. Alternatively, you might file a Chapter 13 bankruptcy instead, which requires a payment plan. There is no loss of property in a Chapter 13, but you are required to pay the full value of your unprotected assets through the payment plan. Finally, you might consider non-bankruptcy options such as debt settlement, debt consolidation, or fighting debt lawsuits.
To review your particular circumstances, contact Brine Consumer Law today for a free consultation.