If you are considering filing for Chapter 7 bankruptcy, you may be concerned that you will lose your property. Various factors affect whether you are able to keep your property during a bankruptcy proceeding, including whether you are eligible for exemptions. Applying exemptions to the property that you do have, including clothing, a car, or a home, can make a difference in your case. At the Bankruptcy Center of Illinois, we provide legal guidance and representation to debtors filing for Chapter 7 Bankruptcy. Exemptions may apply in your Chapter 7 filing, and our DuPage bankruptcy attorneys are ready to effectively represent you so that you can hold onto your property.
After filing for bankruptcy, many people worry they will lose all their property. Assuming an individual does have assets to sell, these are usually sold to pay creditors. However, individuals may hold onto certain property in a Chapter 7 bankruptcy by claiming an exemption. If exemptions apply, the debtor will not turn over all property ther bankruptcy estate. Property that is exempt will essentially be saved.
At the time a person files for bankruptcy, their estate includes all property owned at the time of filing. This includes but is not limited to: property in physical possession, property you retain but have loaned to a friend, proceeds from property like a rental income, as well as marital property. A bankruptcy trustee controlling the property included in the estate will sell property in order to raise money and pay off creditors.
During a Chapter 7 bankruptcy case, exempt property includes those necessities to work and live. Bankruptcy is intended to assist debtors financially, so that they can be more independent and responsible. By taking property, this goal is not served. For this reason, bankruptcy exemptions are carved out, providing debtors with property they need to regain their footing.
Chapter 7 bankruptcy is sometimes called “liquidation bankruptcy” because assets are sold to pay debt. Each state maintains its own set of exemptions that coincide or replace federal exemptions.Property that is more likely to be exempt and therefore retained by the debtor includes motor vehicles, jewelry up to a certain value, pensions, damages for personal injury, and reasonably necessary clothing.
In many cases, the debtor will be forced to give up family heirlooms and collections, expensive musical instruments, a second car or truck, and a second home. Cash and bank accounts are also often non-exempt during a Chapter 7 bankruptcy filing. A dedicated attorney can help assess whether specific property is likely to be exempt.
It is fairly easy to retain an asset that is worth the value of the exemption. However, if the asset is more valuable than the limit of the exemption, the process becomes complicated. The trustee may take the asset, sell it, and reimburse you for the value of the exemption. The remainder would be paid to creditors.
If you have secured debt, such as a mortgage or car payment, Chapter 7 exemptions do still apply. First, the creditor gets paid because of their lien on the property. You will likely keep the asset if the value is equal to or less than the total of the exemption combined with the secured debt. This is because the exemption covers the remaining value. However, if the asset’s value is more than the secured debt and total of the exemption, the asset will be sold and the creditor paid. You will be reimbursed for the amount of the exemption and any other creditors will receive the amount left over.
Understanding the importance of exemptions in Chapter 7 bankruptcy filing is important because you may be able to retain necessary assets.. Your life does not have to be completely disrupted by filing for Chapter 7 bankruptcy. Our skilled DuPage County exemptions attorneys can help. Call our office today at (773) 993-0024 or complete our online form to speak to someone about the specifics of your case.