What Happens to Assets During Bankruptcy?

Bankruptcy Lawyer

Choosing to declare bankruptcy is not easy. Because bankruptcy stays on your financial record for years (up to a decade), it is imperative you understand what you’re getting into before you make the final decision and file.

One of the things you may want to ensure you understand is how your assets are affected during the process. When filing for bankruptcy, you need to know what happens to your house, the property your parents left you in their will and your vehicle. Not understanding may lead you to make a mistake you can’t take easily fix.

Choosing a Bankruptcy Type

You may have a notion that there are different types of bankruptcy filings. Perhaps you’ve heard of large corporations, like Mattress Firm, filing for Chapter 11 bankruptcy proceedings. You may have a colleague at work that filed under Chapter 7. What type of bankruptcy you file determines how many of your assets and debts get handled.

Chapter 13 Bankruptcy

Chapter 13 filings involve a restructuring of your debt to allow for more favorable payment terms. This may mean some debts get written off while others get reduced to allow for a more convenient repayment plan. Chapter 13 payment plans have to be complete within three years of the filing. After this time, the remainder of the debt is considered written off. Under Chapter 13, you get to keep all of your assets.

Chapter 7 Bankruptcy

Conversely, Chapter 7 bankruptcy broadly wipes out your debt. It seizes your assets unless you qualify for an exemption under specific terms. Some states allow you to keep things like your house and your car. Retirement accounts may also be exempt. However, once everything is seized, the court pays off bills, and whatever debt remains after the money runs out is eliminated. Under Chapter 7 bankruptcy, your debt is wiped clean (except for some things like Federal Student Loans).

The Differences Between Chapters 13 and 7

There are a few main differences between Chapters 13 and 7 bankruptcy filings. The first is the way the debt is handled. Under Chapter 13, your assets remain intact, and you restructure debt to help pay it. Under Chapter 7, you may lose your assets (unless you get exemptions) and your debt is wiped out. No payment plan is created. The second is how long the bankruptcy stays on your credit report. Under Chapter 7 it remains a mark for 10 years. Under Chapter 13, it only stays seven years because you make payments to your creditors.

Hiring a Memphis, TN bankruptcy lawyer to guide you through which bankruptcy filing works best for your situation is recommended. An attorney will know how to handle your assets and give you the best shot at moving forward.

Thanks to Darrell Castle & Associates for their insight into bankruptcy law and keeping credit cards.