Can you retain your assets in a Chapter 7 bankruptcy?
Hear from our bankrtupcy attorney, Steven R. Wilmoth! ____________________________________________
One the most common questions I am asked as part of a bankruptcy consultation concerns the ability to retain possessions while still eliminating most debt in a Chapter 7 Bankruptcy.
In the vast majority of Chapter 7 bankruptcy cases the debtor is able to keep all of the assets that they wish to. These are called no asset Chapter 7 cases since there are no assets for the Chapter 7 Trustee to liquidate.
There are two primary ways a Chapter 7 debtor will be able to retain their assets.
First, a lien may be attached to the asset. This is most commonly found when dealing with automobiles and houses. If the amount of money that must be paid to satisfy the lien is approximately the same amount as the fair market value of the property then the Chapter 7 Trustee will have no interest in that asset. Basically, if the Trustee sold the property most all of the proceeds from the sell would go to the entity that holds the valid lien. In other words, there is little to no equity in the asset. While you must agree to continue making regular payments to the secured creditor until the debt is paid, assuming you remain current on the payments you will, in the vast majority of cases, be able to retain that asset.
The second way to protect assets in Chapter 7 is with exemptions. A certain value of your property is exempt from creditors and from a Trustee sale. While bankruptcy is federal law, these exemption amounts are based on Tennessee law and so differ from state to state. While there are a number of different exemptions available to the citizens of Tennessee the two most common are the personal property exemption and the homestead exemption.
The personal property exemption, as the name suggests, is used to protect personal property which is generally understood to be all property besides real estate. In Tennessee the personal property exemption is $10,000 per person. This means that as long as each debtor’s personal property, such as cash, furniture, electronics, equity in vehicles, etc. does not exceed $10,000 then he or she is entitled to retain all assets. This is the case in most Chapter 7 cases.
The homestead exemption is designed to protect equity in the debtor’s primary residence. The amount of equity that can be protected in Tennessee depends on whether it is a joint filing or single filing, the age of the debtor or debtors and whether the debtor or debtors have custody of a minor child. As long as the equity in the residence does not exceed the homestead exemption the Chapter 7 Trustee will have no interest in selling the home.
Of course, if losing assets because of the value of the asset or assets it may be more appropriate to consider a Chapter 13, which will allow the debtor to protect assets he or she may otherwise lose in the Chapter 7 case.
Bankruptcy is a complex area of the law and if you are suffering from overwhelming debt or are in danger of losing an asset to a creditor via foreclosure or repossession I am happy to offer a free, no obligation consultation to go over your options.
The Fleming Law Firm is a debt relief agency. We help people file for Bankruptcy under the Federal Bankruptcy Code.