You may feel like you’re drowning in debt. Maybe creditors are calling you relentlessly. Threats of lawsuits or repossession of property weigh on your mind.
You applied for credit many times but were rejected each time. These are all signs that it’s time to file for bankruptcy.
In filing bankruptcy chapter 7, you have nothing to lose and much to gain. But as you prepare, you may wonder what will happen to your assets when you file for bankruptcy. Read on to find out.
An Overview of Chapter 7 Bankruptcy
When filing bankruptcy Chapter 7, all your assets become part of the bankruptcy estate. A bankruptcy trustee will manage them, and any profits or losses from the asset sale will be distributed amongst the creditors.
Furthermore, some of your assets may be exempt from the bankruptcy estate, depending on the laws of your state. Exempt assets include, but are not limited to, public benefits, pensions, tools of the trade, and specific amounts of equity in your home or car. A bankruptcy attorney can provide more details on what assets if any, you can keep.
Determining Which Assets are Exempt
When filing for a Chapter 7 Bankruptcy, individuals can choose which assets are exempt from creditor claims. This means that the assets selected will remain within the debtor’s control, even after declaring bankruptcy. Generally, states have laid out a list of which assets are considered exempt, such as:
- retirement accounts
- certain household items
- Part of the debtor’s income and wages
Another relevant asset exemption is the homestead, which prevents creditors from seizing the primary house. Although this amount often differs between states, it can be anything from $125,000 to $750,000.
Most other assets, such as vehicles, jewelry, and financial assets are non-exempt and will be liquidated to repay creditors. The bankruptcy trustee will determine which debts should be paid off first and distribute the remaining assets.
The funds from these assets will then pay off a part of the unsecured debt. The list of assets that are exempt is ever-changing, so it may be beneficial for individuals to consult a legal professional for more information and to officially determine which assets are exempt.
The Process for Liquidating Assets
When filing bankruptcy Chapter 7, liquidating assets begins with the bankruptcy trustee working with the filer to determine which purchases are eligible for liquidation.
These assets are typically subject to creditors’ claims, such as property and investments. All other assets, such as personal items and clothing, are exempt from liquidation.
Bankruptcy trustees list these assets in the debtor’s bankruptcy schedules and take possession of them. The trustee uses the assets to repay creditors in exchange for the discharge of the debtor’s obligations.
Next, the bankruptcy trustee sells the assets at a public auction. The proceeds from the auction are distributed among the creditors.
Lastly, once the creditors have been paid, the remaining assets are returned to the filer. The goal of liquidating assets during Chapter 7 bankruptcy is to pay the filers’ debts using the help given to the bankruptcy trustee.
Filing Bankruptcy Chapter 7
Filing bankruptcy Chapter 7 is a complex process that requires careful consideration. All assets acquired within the last 180 days can be subject to seizure, so it is crucial to understand the help that can be affected. Speak with a knowledgeable bankruptcy attorney today to determine if Chapter 7 is your decision.
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