Filing Chapter 7 Bankruptcy: Asset Protection

When people consider filing Chapter 7 bankruptcy, they often wonder about protecting their assets and what they will be allowed to keep once the bankruptcy is over. Chapter 7 is a liquidation bankruptcy, where your assets are sold by a court appointed trustee to pay off as much of your debt as possible.

There are exemptions that you are allowed to take in order to keep protect your assets from being included in your bankruptcy. Bankruptcy laws are federal laws, but one part of the bankruptcy law allows states to create their own exemption lists. It is very important if you are planning a Chapter 7 bankruptcy that you work with a local bankruptcy attorney who knows what is exempt in your state and how local laws apply in your situation.

Selling Assets

Any assets that you have which are not exempt, and do not have a lien attached to them are supposed to be sold by the trustee in order to gain the most money to repay debt.

• Most Chapter 7 bankruptcy cases are actually "no-asset" cases which means that the debtor does not have enough non-exempt debt to repay any creditors.
• The trustee has the right to recover assets that you may have sold within 90 days prior to filing bankruptcy, or even debt payments you made in a preferential way to one or more debtors within 90 days prior to filing bankruptcy.

Exempt Assets

Assets that are legally exempt from inclusion in the bankruptcy estate vary by state. It is through these exemptions that a person filing for bankruptcy can protect their assets. Exemptions can cover your home, the car you need to get to work, some tools you may need for work, and some household goods. To illustrate how different the exemptions can be depending on where you live, here are several examples of how exemptions might work to protect your home under Chapter 7:

• Maine - you can exempt up to $12,500 in equity or up to $25,000 in equity if there are minor children living in the home.
• Montana - you can exempt up to $40,000 in home equity.
• Texas - if you live in an urban area you can exempt property up to 1 acre. If you live in a rural area and you are single, you can exempt up to 100 acres. If you are married and live in a rural area, the exemption is up to 200 acres. There is no monetary value limit on this exemption.
• Arizona - you can exempt up to $100,000 in home equity value.

Get Legal Help

If you do have assets that you want to protect in bankruptcy, consult with a bankruptcy attorney. Asset protection is complex and subject to strict rules and restrictions. Your bankruptcy attorney can advise you on the best options to protect your assets and still obtain relief from overwhelming debt.