Most people filing for bankruptcy often have concerns about how bankruptcy will affect their assets. These proceedings could be complicated, but working closely with a bankruptcy attorney will ensure that you make the right decisions for your finances. A bankruptcy attorney will assist you in understanding your rights and alternatives and ensure your bankruptcy matter is handled correctly. This blog post discusses how bankruptcy can affect your assets.
Bankruptcy under Chapter 7
Filing bankruptcy under Chapter 7 aims to use the proceeds from the sale of assets to settle debts. Many forms of assets and properties can be liquidated during bankruptcy. However, there are several exemptions.
Under Chapter 7 bankruptcy, liquidation is intended to assist in relieving you of the mounting debt you are presently unable to discharge. Those who qualify for Chapter 7 bankruptcy and meet all of the criteria will see their remaining obligations discharged.
Exempt Assets and Property Under Chapter 7 Bankruptcy
The law permits borrowers who declare bankruptcy under Chapter 7 to retain a certain amount of assets, belongings, and earnings. These benefits are referred to as exemptions. Federal and state bankruptcy exemptions safeguard your assets from lenders and trustee liquidations.
The most typical one is the "homestead exemptions," which permit a debtor to keep their primary residence. There are two California tables used to calculate exemptions. Homeowners with equity often have access to the exemption table. The second is for tenants and homeowners without equity.
These tables have different categories of exempt items and different levels of exemptions. The following are defined as exempt assets during bankruptcy:
- Your home
- Your primary vehicle
- Everyday personal items
- Federal aid programs
- Burial plots
- 401(k) plans, pensions, and retirement accounts
- Unemployment and Social Security benefits
- Health aids
- Policies on life insurance
- Household items
- Tools of the trade for self-employed persons and small enterprises
You should consider other alternatives before declaring bankruptcy or starting the liquidation of assets. Consult with your bankruptcy attorney to seek guidance, advice, and recommendations for effective debt relief. Your lawyer will analyze your finances and assets and assist you in selecting the course of action most favorable to you.
What Assets are Not Exempt under Chapter 7?
The term "non-exempt asset" refers to anything not covered by state or federal exemptions. Assets, property, and earnings that aren't deemed necessary to enable you to work or live could typically be considered non-exempt and auctioned by the administrator to pay off your obligations.
Examples of non-exempt property that could be liquidated include:
- Investments outside of your retirement plans
- Second house or apartment you own besides your main home
- Expensive collectibles
- A luxurious vehicle or vehicles that are not exempt from bankruptcy
- Expensive accessories and clothing
- Luxury items
How Exemptions are Used
When you declare bankruptcy under Chapter 7, you should prepare a list of every asset and property you possess. Then, your attorney will specify which assets are susceptible to liquidation and which are exempted. There are four possible approaches the trustee could take when handling the assets:
Assets that can be liquidated include:
- Non-exempt Property: Any valuable property not exempt from taxation may be sold by the trustee, who will then use the earnings to settle your debts with creditors
- Partially exempt property may be sold to satisfy debts if its equity value exceeds the exempt sum. When it is sold, you will receive the highest sum permitted by the exemption
Assets that cannot be liquidated include:
- Fully Exempt Assets: You may keep your home, vehicle, or other assets if the exemption fully covers their value
- Non-exempt Property of Minimal Value: You may keep the asset if it doesn't have any equity or when the trustee does not believe selling it would be profitable
Asset if You Have Secured Debts under Chapter 7
If you finance an asset, such as a home or a car, you still own it even if you're still making the loan payments. Therefore, the house is considered an asset during the bankruptcy case. The loan's status determines whether you are permitted to keep that asset.
You cannot keep your home or car if you file for Chapter 7 bankruptcy when your mortgage or auto loan is overdue. If the borrower stops making monthly repayments, secured lenders can repossess the assets used to secure the loan.
The creditor could seize your home, vehicle, or another property if you don't repay these loans. For residential mortgages, this is done through foreclosure. The lender will repossess cars that were used as security for auto loans.
This occurs regardless of exemptions. The trustee will only be concerned about them if the value of these properties exceeds the loan sum payable to the creditor. As a result, if you meet the requirements for bankruptcy under Chapter 7, you will have three alternatives regarding property obtained through secured loans.
Allow the bank to take possession of the asset. In bankruptcy proceedings, the remaining balance of a loan is wiped if the borrower permits the bank to seize the vehicle or property. This implies that you are exempt from repaying the portion of the debt that is still due.
Get your loan payments current to keep the assets. If you catch up on your loan payments and the property or vehicle is fully exempt, it will not be liquidated.
Pay off that asset. Paying your creditor the total actual market value will prevent the liquidation of an asset that would be deemed exempt, such as a house or a vehicle.
Bankruptcy Under Chapter 13
A Chapter 13 bankruptcy allows debtors to repay their obligations over a certain period, often between three and five years. Debt holders are provided a detailed repayment schedule to clear their debts under Chapter 13, allowing them to retain their assets.
People with a steady income but experiencing extreme financial difficulty often file for bankruptcy under Chapter 13. It could be an excellent method to reorganize your debts and get your finances in order.
What Happens to Your Assets in a Chapter 13 Bankruptcy?
You may be curious about what your belongings and assets will become if you're thinking about declaring bankruptcy under Chapter 13. The good news is that filing under Chapter 13 won't impact your home, vehicle, investment, or rental properties.
Remember that you must obtain your bankruptcy attorney's approval before selling, gifting, or refinancing your property while filing for bankruptcy.
This means that none of your possessions, including your home, vehicle, jewelry, or furniture, are for sale. Your bankruptcy lawyer must submit the necessary petitions to the court to obtain approval to sell, refinance, or gift.
If You Have More Assets or Income Than Is Permitted Under Chapter 7, You May Need to File for Chapter 13
Chapter 13 could help if you hold many assets than you're able to exempt or if you have the excessive income to file a Chapter 7 bankruptcy. Although you will eventually have to make a payment to your lenders, it is usually much less than what you normally expect to pay.
Ability to Catch Up on Your Mortgage Payments
Keeping up with your overdue payments for certain obligations is another advantage of filing under Chapter 13. This includes home mortgages, auto loans (in certain scenarios), and nondischargeable debts like several taxes and child support payments. This will allow you to gain ground on your payments for up to sixty months and prevent the foreclosure of your home or seizure of these assets.
You Have to Continue Making Payments Toward Secured Debts
Naturally, you should make all scheduled payments that become due once your Chapter 13 petition is launched for any assets with secured obligations, such as a residence or a car you would like to keep.
However, you should have previously included these expenditures in your budget when calculating your disposable earnings and, consequently, your capacity to settle the Chapter 13 installments.
Chapter 13 Bankruptcy Restrictions
When you declare bankruptcy, you have certain restrictions on the assets and properties you can retain. If your bankruptcy filing seems complicated, you should consult with a bankruptcy lawyer.
A professional attorney can assist you in making the best choices for your situation and developing your plan. They can also aid in your preparation for any encounters with lenders.
If you have a steady source of income, you would most likely be eligible for a repayment schedule under Chapter 13 Bankruptcy. You'll be required to make repayments to your creditors over a period ranging from 3 to 5 years. You'll submit the disposable income to the bankruptcy trustee, who will distribute it to your lenders.
Another restriction of using Chapter 13 repayment plans is that it needs to be approved by the court before you can use them.
You can retain some of your property using a Chapter 13 repayment schedule. This entails saving your home and gaining access to more credit lines. A Chapter 13 payment schedule may allow you to retain your vehicle or other assets. However, before making any decision, consult with your bankruptcy attorney.
You Should Have a Reliable Income
Regarding these restrictions, it is crucial to note that the repayment plans are only available to individuals with stable assets and income. As a result, knowing the limits is critical before filing a Chapter 13 bankruptcy.
Repayment plans under Chapter 13 are an excellent option for protecting your assets and property. The repayment plan restructures your debts into a 3- to 5-year plan with a single low monthly installment. It also assists you in rebuilding your credit and eliminating high-interest rates. This schedule is often referred to as a wage earner since it's designed for employed people who earn a living.
If you are dissatisfied with the result obtained in your Chapter 13 repayment schedule, you can file an appeal. Your bankruptcy trustee would request that your case be dropped or transferred to a Chapter 7 liquidation if the court rejects your proposal. If that occurs, you could ask the court for an extension of time to make good on the default.
Regarding unsecured debt, your repayment plan would have a $465,275 limit. You should consider declaring a personal Chapter 11 bankruptcy if the total debt exceeds this amount.
Making Regular Payments
After filing for bankruptcy, the debtor would begin making monthly installments to the bankruptcy trustee. The debtor might be obligated to make regular payments via a wage withholding, which only applies under certain conditions. When a lender starts making monthly installments, they should make the payments on time to retain their repayment plan.
The repayment schedule is the most crucial element of a Chapter 13 bankruptcy. It should consider all debts and be written following local bankruptcy legal provisions. If a creditor or bankruptcy trustee objects, the schedule would need to be modified to be approved.
The bankruptcy court would probably approve the plan during a confirmation hearing.
In most Chapter 13 bankruptcy cases, the repayment plan depends on the debtor's disposable income. This implies that the borrower's monthly income would be reduced to cover the living costs required to satisfy the repayment schedule's criteria.
A bankruptcy attorney can assist you in reorganizing the payments to accommodate your requirements. Alternatively, they could postpone installments until your earnings are enough to cover them.
Restrictions of a Wage Earner's Schedule
There are several limitations on a wage earner's schedule in Chapter 13 bankruptcy cases. Understanding the plans and how they relate to your case is crucial. Essentially, these are restrictions on what you could do with your outstanding debt. A court's view of a wage earner's repayment schedule is constrained under Section 74.
An individual with a steady income can pay off their obligations for 3 to 5 years by participating in a wage earner's plan under a Chapter 13 bankruptcy case. During this period, your lenders are not permitted to pressure or harass you to make the payments. Before the creditors can proceed to harass you, they should apply for debt relief through bankruptcy courts.
How Do I Know if Filing Under Chapter 13 Bankruptcy is the Best Option for Me?
Filing for Chapter 13 bankruptcy could be ideal for your case, depending on the state. If you're in a lot of debt, Chapter 13 is not your best option. However, if you're a wage earner who intends to be debt-free, Chapter 13 bankruptcy would be the best alternative.
A wage earner's payment schedule can be a beneficial option for individuals with stable incomes who want to retain their homes. This plan typically lasts between 3 and 5 years and allows you to retain your property.
When declaring Chapter 13 bankruptcy, your creditors would not be able to reach out to you without a valid court order. This is because of the special automatic stay regulation in bankruptcy law. Your lender would have to get authorization from the court to collect consumer debt from you. Consumer debt refers to any personal debt incurred for household or individual use.
Once the plan has been approved, your bankruptcy trustee will distribute the money to the creditors. The bankruptcy court must determine whether the proposal conforms to the requirements of the Bankruptcy Code. This process would take about 45 days, and you'll have to offer the trustee a twenty-eight days' notice to lenders before the court hearing.
How Long Will You Make the Payments?
A chapter 13 repayment schedule can last anywhere from 36 to 60 months, but this is the average duration. A more extensive plan is needed for individuals with higher incomes. Individuals declaring chapter 13 bankruptcy should be up to date with their current commitments to lenders, including mortgage loans and other secured loans, in addition to the term of the repayment schedule.
Voluntary Deduction of the Wage
A voluntary wage deduction is another alternative in a bankruptcy case. In this case, the borrower's employer would deduct the monthly installment amount on their behalf and pay it directly to the bankruptcy trustee. Most debtors prefer this option since it's easier to stay on track with the repayment plan.
Voluntary wage deductions also save a lot of money for the borrower by eliminating the need to purchase checks. Furthermore, empirical evidence suggests that voluntary wage deduction boosts the odds of completing a bankruptcy case.
Find a Bankruptcy Attorney Near Me
Filing for bankruptcy can be advantageous in certain instances, but it needs to be carefully assessed. You might, for example, have secured debts like mortgages and auto loans. Lenders have the right to seize the collateral, such as your home or car if borrowers fail to complete payments on their secured debts.
Although filing for bankruptcy could be stressful, an experienced bankruptcy lawyer can help you get through it as quickly as possible.
At the Los Angeles Bankruptcy Attorney, we will work closely with you at each stage to ensure you know what is unfolding and that your interests are upheld. Call us today at 424-285-5525 for a free consultation. We serve the City of Los Angeles.
