Bankruptcy is a legal process through which people can address unmanageable debt. While bankruptcy can offer people a fresh financial start, many people are hesitant to file for bankruptcy because of concerns that they will lose their property, including their homes and cars. Depending on the type of bankruptcy that is filed, some of your property may be at risk. However, many types of property are exempt from the bankruptcy estate under state or federal law. Determining how much of your property might be at risk will depend on the bankruptcy chapter you file and the total value of those assets.

Will you lose your home under Chapter 7 bankruptcy?

Chapter 7 bankruptcy is the most common type of consumer bankruptcy. This type of bankruptcy is called liquidation bankruptcy because some of your assets may be seized and sold to repay a portion of your debts. Your remaining debt balances will be discharged after a few months, meaning that you will no longer be obligated to repay them.

Certain types of assets are exempt from bankruptcy under California’s exemptions up to a specific value. The value of your property is its current fair market value rather than the amount that you paid for it. For a property like your home, you can also subtract your mortgage from the property’s value and claim the exemption for the equity you have in your home. For example, if your home is worth $150,000 and you have $50,000 in equity in your home, you can claim the homestead exemption for the equity that you have and save your home. However, Chapter 7 bankruptcy will not extinguish your obligations to pay your mortgage since it is a secured debt. If you are behind on your mortgage payments, you could still lose your home through foreclosure. To qualify for Chapter 7 bankruptcy, you must pass the means test.

Will you lose your home under Chapter 13 bankruptcy?

Chapter 13 bankruptcy is the second-most common type of consumer bankruptcy. This type of bankruptcy works differently than Chapter 7 bankruptcy. When you file for bankruptcy under Chapter 13, you will propose a repayment plan of between three and five years. During the repayment period, you will pay your priority debts in full and small portions of your unsecured debts. If you complete your repayment plan, your remaining unsecured debt balances will be discharged.

Chapter 13 bankruptcy provides a way for you to save your home if you are in danger of foreclosure. The court issues an automatic stay when you file for Chapter 13 bankruptcy, which will freeze any foreclosure proceedings. You can use the repayment period to catch up on your missed mortgage payments while you continue to make your current payments. To qualify for Chapter 13, your total debt cannot exceed certain limits. You must also have a sufficient, regular income to make your payments under the plan.

Can you keep your personal property under Chapter 7 bankruptcy?

If you file for Chapter 7 bankruptcy in California, you will be able to keep the personal property up to the exempted amounts. If you want to keep your personal property that is worth more than the exemption amount, you can pay the bankruptcy court the difference between its value and the exemption amount. Remember that the value of your personal property is its fair market value rather than its replacement or purchase cost. Your personal property may be worth far less than what you initially paid for it.

You can also subtract any liens from the value of your property. For example, if you have a car that is worth $20,000 and still owe $19,000 on it, You can subtract the auto loan from the value to arrive at $1,000. You can use the state’s exemption against that amount. Like the mortgage on your home, an auto loan is secured against your vehicle. This means that your obligation to continue making your auto loan payments will continue even after your unsecured debts are discharged. If you are behind on your car payments, the lender can repossess your vehicle to try to recoup its losses.

Many other types of personal property also fall under exemptions. When you file for Chapter 7 bankruptcy, you can keep your furnishings, appliances, clothing, and other similar items. Any personal property that you own that is not exempt or that exceeds the exemption amount may be seized by the trustee and sold to repay your creditors. However, you can pay the difference between the value of your personal property and the exempted amount if you want to keep it.

Most people who file for Chapter 7 bankruptcy can keep most of their property because of the exemptions. Even if you lose some of your property, Chapter 7 bankruptcy can be a good option if you are unable to afford your debts.

Will you lose your personal property if you file for Chapter 13 bankruptcy?

If you file for Chapter 13 bankruptcy, your assets will not be seized and sold. Instead, you will be restructuring your debts and repaying a portion of them over three to five years. Your remaining unsecured debt balances will be discharged after you complete your repayment plan successfully.

If you are behind on your car payments, you can use the repayment plan to catch up as long as you continue making your payments as agreed under your loan going forward. Under Chapter 13, you can keep all of your property.

Talk to an experienced bankruptcy lawyer at the Shulman Law Office

It is not an easy decision to file for bankruptcy. However, many people face unexpected circumstances and are unable to pay their debts. Bankruptcy can help you to get out from underneath the weight of overwhelming debt so that you can enjoy a fresh start. To learn more about bankruptcy and whether it is the right option for you, contact the Shulman Law Office in San Jose at 408-297-3333. We offer free, confidential consultations and can assist you with making the right decision for your situation.