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Bankruptcy and Your Assets: What You Need to Know


One of the most prevalent misconceptions concerning bankruptcy is the belief that you must surrender all your assets to qualify for relief from your debt. Fortunately, this is not the case. The treatment of your assets depends on the type of bankruptcy that you file and the type of assets that you own. Read on to learn how your assets will fare if you decide to file for bankruptcy.

Chapter 7 Versus Chapter 13 Bankruptcy

The type of bankruptcy that you file plays a significant role in how your assets are treatment. When you file for chapter 7 bankruptcy, the bankruptcy trustee will sell your eligible property in order to repay a portion of your debts. If the proceeds from the sale of your property do not cover all of your debt, the bankruptcy trustee dismisses the remaining balance.

However, to qualify for a chapter 7 bankruptcy, your income must also not exceed the limits for your state. The size of your household also influences the maximum allowed income to file for chapter 7 bankruptcy.

Chapter 13 bankruptcy requires you to repay a portion of your debts. You will follow a payment plan that lasts for three to five years. Upon completion of your payment plan, the trustee dismisses your unsecured non-priority debt. Your payment and the amount of debt that you repay depends on your income, assets, expenses, and the type of debt that you have.

Primary Homes

You may keep your primary home in both a chapter 7 and chapter 13 bankruptcy. When you file for chapter 7 bankruptcy, make sure that your mortgage payments are current so that you can reaffirm your mortgage when you file. This means that you agree to continue making your mortgage payments according to the terms of your loan.

However, the bankruptcy trustee can seize your home and sell it to repay your creditors if the equity exceeds the permitted exemptions provided by California law. California has two exemption systems that debtors may use to keep their homes. The following data assumes the usage of the system one exemption guidelines, as most individuals who want to keep their homes opt for this set of rules.

The homestead exemption allows single debtors to exempt up to $75,000 of equity, while debtors with families may exempt up to $100,000. Elderly or disabled individuals qualify for an exemption of $175,000.

In chapter 13 bankruptcy, you also have the ability to keep your home. Your monthly payment will include your mortgage payment. Once your payment plan ends, you will pay your mortgage based on the original terms of the loan. If you are behind on your loan, your monthly payment will also include any past due balances.

Vacation Homes

Most debtors are not able to keep their second properties or vacation homes when filing for chapter 7 bankruptcy. You also cannot use the homestead exemption to exempt equity in a second home. If you have equity, the bankruptcy trustee will most likely sell your vacation home and use the proceeds to repay your creditors.

In a chapter 13 payment plan, you may be able to keep your vacation home. However, the exact answer depends on the amount of your secured debt. Check with a qualified bankruptcy attorney for additional guidance.

Retirement Accounts

If you have spent years saving and preparing for your retirement, the idea of bankruptcy wiping out your nest egg feels disheartening. You can breathe easy knowing that most types of retirement accounts receive protection against creditors.

This means that in a chapter 7 bankruptcy, the bankruptcy trustee will not seize your retirement savings and use it to pay back your creditors. When filing for chapter 13 bankruptcy, the trustee does not take the value of your retirements savings into account when calculating your payment.

You may utilize an individual retirement account (IRA) to prepare for retirement. Know that bankruptcy regulations limit IRA balances to $1,245,475; any funds that exceed this amount are subject to seizure or may be used in your payment calculations. There is no balance limit for most other types of retirement accounts, including 401(k)s.

Are you ready to get a handle on your debt through bankruptcy? Contact the Law Office of Cowan & Brady today for a free consultation.‚Äč