Chapter 7 bankruptcy scares a lot of people because they often hear it called “liquidation” bankruptcy. They’re naturally worried about losing everything they own.
Well, the good news is that the vast majority of people who file for Chapter 7 don’t have any assets that can be liquidated either due to their financial position or because the few assets they do own are covered under various “exemptions” in the law. if you’re still worried about the possibility of losing your assets in bankruptcy, here’s what you should know.
What are “non-exempt” assets in a Chapter 7 bankruptcy?
There are sometimes differences between what the federal government and each state view as non-exempt assets, but you there are generally very few non-exempt assets. Those include:
- A property other than your primary residence (like a vacation home)
- Newer vehicles or boats that have significant equity (which isn’t something you usually have to worry about if you still have a note on them)
- Spare cars, other than the one you use for work
- Valuable collections, like artwork, coins and stamps
- Certain investments, like stock holdings (not retirement plans or 401Ks)
The trustee presiding over your bankruptcy may order the liquidation of any non-exempt assets that you have and distribute the proceeds from the sale to your creditors early on in your case.
Should you try to sell off your non-exempt assets before filing bankruptcy?
If you do have any assets that you suspect or know won’t be exempted, you shouldn’t turn over or sell them off before filing bankruptcy.
One of the documents that the bankruptcy court will have you fill out to open your case is your financial disclosure. It will ask if you transferred or sold any property within a certain amount of time before filing for bankruptcy. You could face prosecution on perjury charges if you lie on that document. You may have the court dismiss your case or recover your assets and sell them off if you did transfer assets before filing. They’ll then take the proceeds and pay your creditors.
Is bankruptcy right for you?
It can be crippling having to field seemingly constant calls and letters from creditors. Bankruptcy isn’t the only debt relief option that may be available to you. There isn’t just one type of bankruptcy that you can choose from, either, and other options may allow you to protect more assets. An attorney can help you learn more.
