Thursday, April 28, 2011

File Bankruptcy. Lose All Your Stuff.

If you file for bankruptcy you will lose all of your things.

Wrong.

This common misconception has been beaten into the minds of many people who have considered bankruptcy as an option. Bankruptcy is not meant to deprive you of your things, or punish you in any way for becoming overburdened with debt. Quite the contrary. Bankruptcy is meant to help honest debtors get rid of their debt so they can get back on their feet and move on with their life.

In reality, the great majority of people who file for a typical chapter 7 bankruptcy will lose nothing whatsoever. Now, that being said, there is the possibility of losing property in chapter 7 bankruptcy, but it only happens when the debtor has valuable property that can easily be sold and is not covered by the available bankruptcy exemptions.

What Does This Mean?
In most chapter 7 bankruptcy cases, the person filing for bankruptcy typically has a car with a loan on it, and maybe a house with a mortgage. Those are the two most valuable pieces of property and the easiest to sell. They are also almost always covered adequately by bankruptcy exemptions.

The cases where property does get liquidated is usually something like the petitioner owning an expensive boat, recreational vehicle, vacation property or something along those lines. And even in those cases, it only makes sense for the bankruptcy trustee to sell it if there is not a large loan against it.

A Typical Case
In the typical chapter 7 bankruptcy case, the petitioner has a ton of debt, and very little equity in property or other assets. The most common equity available (a car, house and retirement funds) are protected by exemptions. The end result is that in almost all common chapter 7 cases, the person filing gets their debts discharged and doesn't give up anything in return.

For people that do have a lot of assets that may be vulnerable, they probably would be better served filing a chapter 13 bankruptcy and getting into a payment plan.

See the following links for more information:
Your Property in Bankruptcy
Which Bankruptcy is Best for Me?

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