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How To Not Lose Everything You Own During Chapter 7 Bankruptcy

Feb 28, 2024 | Bankruptcy

If you are confronted with the daunting prospect of Chapter 7 bankruptcy, it doesn’t mean that you are a lazy or irresponsible person. You probably – like most people who end up filing – have worked hard over the years to secure a stable lifestyle for yourself and your family, and have accumulated your fair share of assets the process. However, somewhere along the way, you ran into challenges that resulted in massive debt.

Maybe you were blindsided by an accident or illness, and medical debt was the start of your troubles; maybe you got laid off; maybe the pandemic hit your business hard; maybe something else outside of your control happened, or maybe you simply didn’t make wise decisions about credit and budgeting because you weren’t educated about them.

Whatever the reason, now filing for Chapter 7 bankruptcy seems like the smart path forward, but it’s a scary one! Everything you own, including your home, vehicles, and valuable possessions, is understandably important to you on a personal and financial level. The fear of losing everything may be overwhelming, but there is a silver lining!

As you begin this difficult journey, it is critical to understand that not all assets must be forfeited during Chapter 7 bankruptcy. In this article, we will walk you through the maze of Chapter 7 bankruptcy assets and help you navigate the process with confidence. We will identify which assets are protected and which may be at risk, and we will provide you with critical information to protect what is most important to you regardless of which category it may fall in. Let’s get started so you can get started protecting your assets!

Chapter 7: Asset Liquidation

If you’re filing Chapter 7, be aware that you could be made to liquidate some of your property, which means to turn your property into cash, in order to pay your creditors. This is one of the unfortunate consequences of bankruptcy. While selling off your assets can be a difficult task, you can reduce losses and possibly keep most of your assets by taking the appropriate steps.

Here are some tips and strategies to help you sell, or liquidate, your assets in the most efficient way to pay your creditors and move on with your life:

Prioritize: Sort your assets based on their importance for your future financial stability. Think about your house, your car, and your necessities. They might be shielded from liquidation by exemptions (we’ll talk about this below). Prioritizing assets lets you safeguard what matters most.

Value: An accurate valuation is necessary to determine your assets’ liquidation value. Consult appraisers to obtain an accurate asset assessment. By proving their market value, you can bargain and make informed liquidation decisions.

Disclose: Avoid transferring assets to relatives or friends to avoid liquidation. Such transfers may be fraudulent and incur legal penalties. Disclosure of all assets is crucial to the credibility of your bankruptcy case.

Maximize: Consult with experts to increase asset value before liquidation. Repairing, remodeling, or improving assets may increase their marketability. Taking good care of your assets can result in higher returns upon liquidation.

Remember, each bankruptcy case is unique, and specific guidelines govern the liquidation process. Seeking the advice of a qualified bankruptcy attorney will ensure you make informed decisions and navigate the process confidently.

Chapter 7: Exempt Assets 

If you go through a Chapter 7 bankruptcy, not all of your assets are either used to repay your creditors or seized by them. In fact, there are ‘exempt’ assets that belong to you, no matter what, even if you go through the bankruptcy process. Knowing if an asset is exempt is therefore crucial, especially if you want to preserve as much of your money as possible! Chapter 7 bankruptcy uses exemptions to help you retain your standard of living, within reason.

So what are the exempt assets in Chapter 7 bankruptcy? Simply put, exempt assets are those that the bankruptcy code allows you to keep, up to certain allowances. Each state has its own set of exemptions, but they vary considerably. Generally speaking, though, the most common exempt assets are your:

  • Primary residence: You’ll usually be able to hold on to your home up to equity minimums.
  • Vehicle: You can often keep at least one vehicle, with specific equity limits.
  • Household furniture and effects: Personal property and household belongings up to a certain amount are exempt.
  • Clothing: Exemptions vary, and may include clothing, jewelry, and other essential items.
  • Qualified retirement plans: Qualified retirement plans, including IRAs or 401(k)s are exempt from creditors.
  • Government benefits: Government benefits that publicly assist people, such as social security, unemployment, and disability allowance, are also exempt.

The exemption standards in your bankruptcy jurisdiction may vary depending on your circumstances and the rules. Check with a bankruptcy attorney to confirm your property exemptions. A solid understanding of exempt assets can help you safeguard your money by covering your most valuable assets.

Chapter 7: Non-Exempt Assets 

Chapter 7 bankruptcy allows the liquidation of non-exempt assets. You may have to sell off exempt assets to pay off your debts. Understanding the distinction between exempt and nonexempt assets, as well as how to value them, is critical when liquidating assets. Investments, real estate, jewelry, high-end automobiles, and recreational vehicles are all examples of non-exempt assets.

The bankruptcy court will determine the value of nonexempt assets using their market value. To initiate bankruptcy proceedings, you must disclose all of your assets. Asset appraisal can be intimidating, but you can mitigate the damage by accurately listing your assets.

You can learn about your options and create a strategy to keep as much of your property as possible with the help of a skilled bankruptcy attorney. You should keep in mind that Chapter 7 bankruptcy allows you to start over debt-free, but creditors have to be paid somehow!

Protecting Your Assets In Chapter 7 Bankruptcy

When going through Chapter 7 bankruptcy, it is crucial to protect your assets. With careful planning and strategy, you can safeguard your assets within the legal limits and minimize potential losses. Here are some practical tips and guidance to help you navigate asset protection in Chapter 7 bankruptcy:

The Importance Of Using Asset Protection Techniques 

Asset protection techniques play a critical role in safeguarding your assets during Chapter 7 bankruptcy. By employing appropriate strategies, you can ensure that you retain as many assets as possible. Some common asset protection techniques include:

  • using trusts or other legal entities and
  • strategically converting nonexempt assets to exempt assets

Potential Pitfalls To Avoid 

In your pursuit of shielding your financial assets, steer clear of misconduct that could lead to major repercussions. Make sure to avoid these typical mistakes:

  • attempting to commit fraud by shifting assets
  • engaging in unethical financial practices, and
  • violating laws.

Consulting a bankruptcy attorney can help you legally protect your belongings during Chapter 7 bankruptcy. They can offer you tailored advice, clarify complicated legal issues, and support you in making wise choices. An attorney can assist you in following the proper procedures and protecting your property. Utilizing good asset protection strategies and avoiding common mistakes will help you secure your assets during a Chapter 7 bankruptcy. Keep in mind that every case is unique, so get professional legal advice to safeguard your assets and abide by the law!

Schedule Your Free Consultation Today!

If you are having trouble paying your debts due to the tough economy or personal reasons and don’t see a way out of your current financial jam, a Chapter 7 bankruptcy could be a solution for you. Filing for bankruptcy has been a new beginning for many of our clients at Ted Machi & Associates. We can assist you with the necessary papers, and we will be by your side throughout the entire procedure. Our firm can help you find a solution if you contact our office today to arrange a no-cost consultation. We are happy to schedule a time to meet with you so we can answer any questions you may have about exempt and non-exempt assets!

Ted Machi & Associates, P.C.

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