How Exempting Assets Works In Chapter 7

If you are experiencing extreme financial problems and are considering using Chapter 7 bankruptcy for relief, you may have a lot of questions about it. One of the questions many people have relates to keeping their assets. In Chapter 7, there is a risk you may lose things you own, but you can often determine this before you file by understanding how exempting assets works in Chapter 7 cases. Here are a few things to understand about the way this works in bankruptcy.

You do not have the risk of losing assets in Chapter 13

Just to be clear, it is important to know that if you choose to use Chapter 13 bankruptcy instead of Chapter 7, you do not have to worry about this issue. In Chapter 13, you keep your things, primarily because you are agreeing to repay all the debts you have. Therefore, if you are really concerned about losing assets, you could use Chapter 13, where there are no risks of this occurring.

Your state allows you to exempt equity in your property

If you continue with Chapter 7, the first thing to know is that you will not lose all your property. You are entitled to keep certain things you own if you file for Chapter 7, and this includes your personal belongings. You can also keep your car and home if you can exempt the equity in these things.

Each state has guidelines as to how much equity you can exempt. If you can get the equity you have exempted, you will not lose the item. If you look at your car, for example, you might understand this better. Suppose your car is worth $5,000 and you owe $4,000 on it, you will only have $1,000 of equity in the car. In this case, you would probably not lose your car because your state will likely allow you to exempt the $1,000 of equity you have due to the low amount.

On the other hand, suppose you have a house worth $200,000 and you owe $80,000 on it. In this case, you would have $120,000 of equity in the house, which is a lot. Your state likely will not allow you to exempt this much equity, which means you may have to vacate your home if you use Chapter 7.

If you still have questions about the way exempting assets works, talk to a bankruptcy lawyer, as this can help you learn more.