If I file bankruptcy will I lose all of my property?

All states have bankruptcy exemptions which protect certain assets in bankruptcy, but... whether or not you can keep your house, car and other property will depend on your state, how long you have owned the property, your remaining balance on the property loan, your state bankruptcy exemption laws and whether or not you file Chapter 7 or Chapter 13 bankruptcy.

Let's start by discussing Chapter 7 bankruptcy. A Chapter 7 bankruptcy is known as a liquidation bankruptcy. It allows the debtor to immediately discharge most types of unsecured debts (credit card bills, unsecured loans, and medical bills) but will allow the court to seize nonexempt assets, sell them, and use the proceeds from the sale to pay creditors in priority order established by the court. Any qualifying, unsecured debts which are not paid through the sale of your assets will be discharged. Consider, however, there are some unsecured debts which are not dischargeable.

Many debtors ask if they will lose their home if they file Chapter 7 bankruptcy. There is not a simple answer. Whether or not your home is seized will depend on your state's homestead exemption (which varies by state) and the amount of equity you have in your home. Some states make it easier to keep your home; other states do not.

Debtors who file Chapter 13 bankruptcy and create a 3 or 5 year debt repayment plan to repay a portion of their debts will find it easier to retain their property. After you file Chapter 13 bankruptcy, the court will review your plan. If it is accepted, you will make monthly payments towards debt repayment. It is easier to keep your home by filing Chapter 13 bankruptcy, assuming you continue to make the mortgage payments each month and you are able to create a plan which allows you to repay any payments which are in arrears. If you do not continue to make mortgage payments or you do not complete your debt repayment plan, the bank can foreclose on your home. The mortgage debt is not discharged through bankruptcy because it is secured debt.

What about keeping other property?

As mentioned above, it depends. Chapter 7 and Chapter 13 bankruptcy laws allow property up to a specific limit to be exempt, which means it will not be considered part of the bankruptcy estate and will be protected.

Let's look at an example. For instance, if the exemption in your state for a motor vehicle is $6,000 and your car is worth $3,000 and you are filing Chapter 7 bankruptcy, the trustee will not sell your car. What if the vehicle is worth $25,000? The bankruptcy trustee will sell your vehicle and use the money from the sale to pay the car loan creditor. You would be paid $6,000 for the bankruptcy exemption, and if there is money remaining, it would be used to repay other unsecured creditors.

Some states such as Texas allow you to exempt a two, three, or four-wheeled motor vehicle for each single adult or each family member who has a driver's license. So in Texas you might be able to keep your car, but there's a catch- Texas has a limit on the aggregate amount of personal property you can exempt. The limit for a single person is $30,000. So depending on the other property you have and what you want to keep, you may choose to forfeit your car so you can keep other personal items.