Will I have to give up my personal possessions if I file for bankruptcy?

UPDATED: Jul 19, 2023Fact Checked

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Jeffrey Johnson

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 19, 2023

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UPDATED: Jul 19, 2023Fact Checked

Whether or not you have to give up your personal possessions when you file for bankruptcy depends on what type of bankruptcy you file. Even if you are required to relinquish your possessions, many of your belongings are exempt and will not be considered bankruptcy assets.

Chapter 7 and Chapter 13 are the two main types of consumer bankruptcies. A Chapter 13 bankruptcy is best characterized as a “restructuring” bankruptcy because your debts are restructured through a payment plan spread out over five years.  Chapter 13 does not usually involve you “losing your possessions.”  Chapter 7, however, does sometimes involve the loss of possessions.  Possessions which are not exempt can be seized and sold by a bankruptcy trustee to satisfy any of your outstanding debts.  The Bankruptcy Code determines which assets will be turned over to the trustee.

The federal Bankruptcy Code provides that you can protect some property from the claims of creditors either because it is exempt under federal bankruptcy law or because it is exempt under the laws of your home state. You get to keep the exempt property. In Chapter 7, the trustee will take any property that is not exempt and sell it to pay off creditors. (The “exempt” and “nonexempt” classification has no effect under a Chapter 13 bankruptcy, since a repayment plan is used to pay your debt obligations.)

Many states have taken advantage of a provision in the bankruptcy law that permits each state to adopt its own exemption law in place of the federal exemptions (click here for a list of state bankruptcy exemptions). In other jurisdictions, you have the option of choosing between federal exemptions or exemptions available under state law. Though the types of property that are exempt may be similar under both federal and state law, the value of the asset that can be excluded differs widely. If you are married filing jointly, both spouses must make the same exemption election.

Case Studies: Personal Possessions in Bankruptcy

Case Study 1: Protecting Exempt Assets in Chapter 7

Emily filed for Chapter 7 bankruptcy after facing overwhelming debt from medical bills and credit card expenses. During the process, Emily discovered that certain possessions were exempt from liquidation, and she could retain them even after bankruptcy. By working closely with her bankruptcy attorney, Emily ensured that essential assets, such as her primary residence, vehicle, and necessary personal belongings, were protected as exempt assets.

Case Study 2: Utilizing State Exemptions in Chapter 13

David chose to file for Chapter 13 bankruptcy as he aimed to restructure his debts through a manageable repayment plan. Living in a state with favorable bankruptcy exemptions, David worked with his bankruptcy lawyer to leverage state-specific exemptions to protect valuable assets while adhering to the court-approved repayment schedule. This strategic approach allowed David to keep vital property, such as tools of trade and sentimental family heirlooms, despite the bankruptcy process.

Case Study 3: Weighing Federal vs. State Exemptions

Sarah and Mark, a married couple, decided to file for joint bankruptcy to address their accumulated debts. One of the critical decisions they faced was choosing between federal and state exemptions. Working closely with their bankruptcy attorney, Sarah and Mark analyzed the exemptions available under both options. Ultimately, they opted for the state exemptions, which provided better protection for their home equity and other assets based on their specific financial situation.

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Jeffrey Johnson

Insurance Lawyer

Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

Insurance Lawyer

Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.

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