Clients are often concerned about whether they will lose any of their property when they file bankruptcy. However, most people that file bankruptcy do not lose any of their property. Maybe because Chapter 7’s are known by the nickname “liquidation", people believe that all their stuff will be liquidated. Actually, the vast majority of Chapter 7 bankruptcies are “no asset" cases because none of the debtors’ assets are actually liquidated as part of the bankruptcy.
The bankruptcy code provides exemptions which protects your property in a bankruptcy proceeding. Exemptions are laws which protect a specific piece of property. For example, most states have a “homestead exemption". Homestead exemptions protect your primary residence from becoming part of the bankruptcy estate. Most states even provide exemptions for household goods, clothing, retirement accounts, wedding rings, guns, and even burial plots. Most people who file for chapter 7 bankruptcy do not own nonexempt property.
While there is usually a limit to how much can be exempted, the exemption amounts are usually sufficient to protect the average debtor’s assets.
Examples of Exemptions
If a person files for bankruptcy in Arizona, and has lived in Arizona for at least two years then they will use Arizona exemptions. The homestead exemption in Arizona protects a filer’s home and up to $150,000 in equity. IRA’s and 401K’s are 100% exempt. This means you could literally have a $1,000,000 in your 401K, file bankruptcy, and it would be completely protected. For a single person they can have up to $5,000’s worth of equity in their vehicle. Married couples can have up to $10,000’s equity in one vehicle or $5,000 in two separate vehicles.
While there are exemptions that protect a broad range of property a person owns there are also many types of property which are not protected. For example, if you own a boat—that is completely paid for—this would be a nonexempt asset. Additionally, assets such as; land, stocks, certificates of deposit, boats, timeshares, second homes, are not protected in bankruptcy.
One of the most important things a bankruptcy attorney does is help a client prepare to file a bankruptcy. Bankruptcy exemptions are very complex and if you believe you have nonexempt property you should immediately call and set up an appointment with one of our attorneys.