Protect Your Property

In a Chapter 7 case, you can keep all property which the law says is “exempt” from the claims of creditors. If a piece of property is exempt, it is protected from most creditors (including those listed in your bankruptcy), and you can keep it.

Here in North Carolina, our exemptions are set by our state statutes. The exemptions for an individual include: 

  • $35,000 equity in your home; 
  • $3500 equity in your car; 
  • $5000 worth of household goods; 
  • $2000 worth of things you need for your job (tools, books, etc.); 
  • $5000 worth of any other property, provided you have not used all of your home equity exemption; and 
  • most retirement accounts, such as 401k accounts and IRAs. 

If a husband and wife file bankruptcy together, most exemption amounts are doubled. 

Equity is the market value of an item minus the amount owed on it. This applies only to items which are security for a loan, which is usually your house and car.

There are many details and “gotchas” involved in best claiming your exemptions. Certainly, you want to minimize the property you might lose in a Chapter 7, and determining the best way to use your exemptions is crucial to a successful case. With proper planning, many of my clients keep all their property.

While your exemptions allow you to keep property in a Chapter 7 case, if you are behind on your mortgage or a car loan and you are facing foreclosure or repossession, your exemptions will not prevent a mortgage holder or car loan creditor from taking the property to cover the debt. If you are behind, and you want to keep the house or car, you may be better off filing a Chapter 13.

In a Chapter 13 case, you still need to do the exemption analysis, but not to figure out what property you might lose, but rather to help figure out the amount of your Chapter 13 plan payments.  You can keep all of your property even if you are behind on the payments, provided you can show that from now on you will be able to keep the payments current. A Chapter 13 filing can force your creditors to let you catch up by making smaller payments over a long period of time, somewhere between 3 and 5 five years.

 

 

For answers to other questions you may have, feel free to visit the other pages listed under the "About bankruptcy" link. It's found at the top of every page on our site.