Recently on our bankruptcy forum a user asked, “I know that when I file Chapter 7 bankruptcy there is a good chance that some of my assets will be liquidated. A friend told me, however, that under bankruptcy laws some of my assets might be protected. He called these exempt assets. My question is what assets are nonexempt assets and what am I likely to lose if I decide to file Chapter 7 bankruptcy?”
Nonexempt assets and filing Chapter 7 bankruptcy
Filing Chapter 7 bankruptcy may allow certain qualifying unsecured debts to be discharged. Debts which may be discharged include unsecured personal loans, credit card debts, and medical bills.
Getting a discharge of your debts, however, does not come without a prices. As you would expect, creditors are not too excited about simply writing off the debts you owe.
With that in mind, if you do decide to file Chapter 7 bankruptcy a trustee will be assigned to your bankruptcy case. They will take an inventory of your personal assets and certain assets will be placed in what is termed your bankruptcy estate. The trustee is then allowed to liquidate certain bankruptcy estate assets to generate funds to repay creditors in priority order established by bankruptcy laws.
What assets will be exempt from bankruptcy?
Nonexempt assets are identified under state and federal bankruptcy laws. In fact, not only is there a federal listing of property which is exempt, each state has also created their own state listings. Whether or not you have to use the state listing or you are allowed to choose either to use the state or the federal listing is determined by state law. You cannot, however, mix and match from each list.
Exempted assets vary by state as mentioned above, but can include a certain number of items that the state and federal government have deemed are necessary for life and for allowing you to make a fresh financial start following bankruptcy.
Common exceptions include necessary clothing, cars up to a certain dollar value, certain household goods and furnishing, pensions, a portion of the equity in your primary residence, and certain tools for your employment. Damages awarded to you in a personal injury claim, public benefits, and a portion of unpaid but earned wages are also exempted.
What nonexempt assets can be liquidated in Chapter 7 bankruptcy?
Now, you asked what property would be considered nonexempt assets. Nonexempt property includes assets and personal items that are not as critical to your financial recovery. Common nonexempt property includes expensive musical instruments (unless it is considered a “tool of the trade”), cash, bank account balances, a second motorized vehicle, a second home, or any other valuable item that you could not exempt through your wildcard exemption.
Bankruptcy exemption laws are fairly generous when it comes to allowing you to keep assets you will need to restart your life. Due to the complexity of the laws, however, you will need to discuss with your bankruptcy lawyer the best way to protect your assets.
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