Posted on: 20 March 2020
Chapter 7 bankruptcy is sometimes referred to as a liquidation action. This can sound confusing, though, because most understand liquidation to be a business or retail issue and not connected to personal bankruptcy. Although it's far from common, consumers may be at risk of losing some of their assets in some cases. It's best to know what's in store when you file your chapter 7, so read below and learn more about who might be most at risk for losing assets when they file.
Why Are Assets Seized?
Asset seizure for personal bankruptcies came about as a result of laws intending to prevent wealthy consumers from using bankruptcy to shed debts while retaining assets. The more assets a filer might own, the more they could potentially lose. Since the laws mostly target high-income people, most filers lose little if any property. This seizure should not come as surprise to filers since you will know before you file what your potential might be for losses. The assets seized by the bankruptcy court are sold and the proceeds provided to the filer's creditors and used for administrative purposes. For those who are worried about losing an asset, take a look at two important considerations that will probably help you hang on to your belongings.
For most consumers, debt due to large purchases is a way of life. Very few people have enough cash on hand to buy a car or home, for example. At any time, what you owe on an asset reduces its value. When it comes to chapter 7, the lower the value the better. For example, you might have an auto loan and owe several thousand dollars on it. The real value of the vehicle is determined by deducting the loan balance from whatever it's worth. If the bankruptcy court were to seize that vehicle, the loan would have to be satisfied. Most bankruptcy trustees won't bother taking an asset unless it is nearly paid off or worth more than is owed. Those who have recent loans are usually those that can keep those assets as long as they can continue paying the loan balance.
Understanding Bankruptcy Exemptions
Every state provides filers with exemptions. Exemptions are both dollar amounts that can reduce an asset's value and categories of assets that are entirely exempt. For example, one state might allow filers to reduce their vehicle's value by $4,500 and to completely exempt work tools from seizure. These exemptions vary widely, however, with some states being extremely conservative and some very generous.
Don't make a bankruptcy decision based on your fears. Speak to a bankruptcy lawyer about your situation and find out how to obtain the debt relief you need.
For more information, contact a bankruptcy attorney.Share