Liquidation bankruptcy

If you could file for Chapter 7 bankruptcy, erase all your debts and keep everything you’ve got, you (and everybody else) would probably do it tomorrow. But it doesn’t work that way. Chapter 7 is sometimes referred to as liquidation bankruptcy. Most of the debtor’s assets are sold, and the proceeds are used to pay off creditors. Only when there is not enough money to pay off everyone are the unpaid debts erased, or discharged.

Video: Chapter 7 Bankruptcy lets you discharge most of your debts

Taking the Means Test

If your income exceeds the median income set by your state, you must take and pass what’s called a means test, which is not really a test but an analysis of your income, expenses and debts. It’s a good idea to have a bankruptcy lawyer assist you in this. Results of the means test determine how much money you have available for paying your debts. Many potential filers of Chapter 7 can skip the means test because their income does not exceed the state median.

surviving bankruptcy

You won’t lose everything

Once you’ve declared bankruptcy, you must turn over control of your property to a court-appointed trustee. It’s the trustee's responsibility to ensure that creditors recoup as much as possible from your assets, as quickly as possible. The good news: Not everything must be liquidated. Every state has exemptions that protect some of your property.

How to maximize exemptions

You must list all your assets and liabilities when filing for bankruptcy. Go ahead and mark as exempt any property that you wish to protect from liquidation. Consult a bankruptcy attorney to maximize your exemptions. Note that creditors can challenge your request to protect certain items. If they file no objections, you can consider the items protected. If there are challenges, you will probably have to prove that you will need the exempt property to start over again after bankruptcy. Creditors can object also if they believe you are hiding funds and assets. Do not attempt to transfer assets to someone else before you declare bankruptcy. This will not protect assets from liquidation and could give the court reason to deny a discharge of debt. It is not smart to try to hide anything.

Video: What are Federal exemptions in bankruptcies?

Exempt and non-exempt property

Here are some general guidelines regarding personal property that is often exempt (stuff that you will be allowed to keep) and non-exempt (stuff that you won’t):

Exempt property:

Part of the value of motor vehicles
Necessary clothing
Needed household furnishings and appliances
Jewelry and personal effects
Life insurance (cash or loan value)
Pensions
Part of the equity in a home
Professional tools
A portion of unpaid wages
Welfare and Social Security payments and unemployment compensation

Non-Exempt Property

Musical instruments not used professionally
Collections and family heirlooms
Cash, bank funds, stocks and bonds
Second car or truck
Second or vacation home

Will you keep your home?

One question that people often ask when considering bankruptcy is, “Will I be able to hang on to my home?” The homestead exemption, which determines the answer, varies by state. In one state, the exemption, or the amount of equity in your home that you will be allowed to keep, might max out at $100,000. If you have more equity in your home than this, you will likely be forced to sell it. Other states have unlimited homestead exemptions. If you have $5 million in equity in your $10 million manse in one of those states, all the equity is exempt. What about the car? If you have a car worth $20,000, owe $16,000 on it and can make monthly payments, you will probably get to keep it.

Bankruptcy Resources:

Los Angeles, CA
Patricia S. Depew
Phone: 866-435-6067

Hartford, CT
Jonathan G. Cohen
Phone: 866-267-5194

Orlando, FL
Perla & Associates
Phone: 866-309-4389

Chicago, IL
Forrest L. Ingram, P.C.
Phone: 866-435-0748

Indianapolis, IN
Mark S. Zuckerberg
Phone: 866-435-3740

Baltimore, MD
Mehlman, Greenblatt & Hare
Phone: 866-348-2474

Boston, MA
Richard N. Gottlieb
Phone: 866-305-7236

Pittsburgh, PA
Fives & Duchene
Phone: 866-639-3416

Phoenix, AZ
Clark & Associates
Phone: 866-682-1372

Detroit, MI
Walter Metzen
Phone: 888-DEBTGONE

Jacksonville, NC
Roger A. Moore
Phone: 866-715-6640