Understanding the types of bankruptcy you can file is essential if you want to protect some of your assets from being used to pay for your debts. Items that will likely be sold in a Chapter 7, for example, include investments, jewelry, valuable artwork, family heirlooms, newer vehicles with equity and real estate or property that is not used as your primary residence.
The two most common types of bankruptcy filed by individuals, Chapter 7 and 13, provide different options for you to either eliminate all debt, some debt or develop a more affordable repayment plan so you can get your life back on track.
In a Chapter 7, there are assets which are considered “nonexempt” that the court will sell to pay off as many of your creditors as possible. If you do not have any assets which fall under this category, your creditors will not receive any payment.
If you have already filed for a Chapter 7 and do not want to put your investments or other belongings at risk, the trustee might let you pay the same monetary value to your creditors if you are able. Only individuals with a certain income level are usually eligible for a Chapter 7 – often those who make below your state’s average income.
Chapter 13 involves creating a repayment plan to eventually pay off most of your debts. The court will evaluate the estimated value of your nonexempt assets and you will be required to repay creditors with the same monetary value. In this case, you are not required to sell them if you can come up with the money. Keep in mind that while this type of bankruptcy can take longer and will still show up on your credit report, it is often viewed as more favorable than a Chapter 7.
While laws vary somewhat in each state regarding the particular assets which are considered exempt from mandatory sale, the following items are often protected:
- Some of the equity in your primary residence
- Home appliances
- Necessary home goods/furnishings
- Tools used for your job up to a certain amount
- Public benefits
- A percentage of earned wages
- Primary vehicle up to a certain value
Choosing the type of bankruptcy that will benefit your unique situation is essential if you intend on keeping certain items and investments. Consult an experienced lawyer, like a bankruptcy attorney, to help you decide how you can improve your financial situation in the most beneficial way.