You Don't Lose "Everything" In Chapter 7 Bankruptcy
Many people considering filing Chapter 7 bankruptcy have some very real fears about what the state will take in the bankruptcy process. The idea that you can "lose everything" is a common misconception that prevents many people from considering bankruptcy – an option that could help them get their lives back on track. It is time to set this falsehood to rest.
You Don't Lose It All in Chapter 7 Bankruptcy
Let's get one thing straight. You don't lose everything in a Chapter 7 bankruptcy. Yes, you may have to part with significant possessions to escape from your debt. But "everything" is a bit of stretch. Here are the facts:
It is possible to lose most of your assets. Filing for Chapter 7 bankruptcy means you are allowing a bankruptcy trustee to sell most of your assets to pay of your creditors. Depending on how significant your debts are, it may take a considerable amount of money to pay them all off. The state will take most of what you own, sell it, and use the proceeds to settle your debts as best it can. Whatever is leftover (with a few notable exceptions, like student loans) is wiped clean so you can move on with your life.
It is possible to exempt some of your assets. If an asset is exempt, it means that the trustee is not allowed to sell the asset as part of your settlement. You get to keep whatever you can exempt from the bankruptcy.
What you can exempt depends on the state that you live in. Different states have different rules on what you can and cannot exempt. Some states require you to adhere to their rules, while other states allow you to pick between their rules and the federal rules for bankruptcy exemptions.
Often, you can keep at least some of the equity in your home, your car and the money you have in the bank. Granted, this can vary widely by the state you are filing in and your personal circumstances. However, it is quite common for people filing Chapter 7 bankruptcy to keep their family home, their car and the money in their main bank account.
Understanding these facts can help you make a more informed choice on whether Chapter 7 is right for you. Chapter 7 is designed for you to start over while satisfying your creditors as reasonably as can be managed. It is not designed to take away everything you have.