What Property Can I Keep If I File for Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy is often called “liquidation bankruptcy” because the bankruptcy trustee can opt to liquidate, or sell off, your non-exempt assets to repay your debts. Chapter 7 Bankruptcy is usually a good option for people who have mostly unsecured debt, such as medical bills, payday loans or credit card debt and for people who don't own many non-exempt assets.
Under Chapter 7, almost all of your property becomes part of your bankruptcy estate. Exemptions allow you to keep certain property up to a specified value—while some states allow you to choose between the federal and state list of property exemptions, under Illinois bankruptcy exemption laws you may only use the state property exemptions, such as your homestead, necessary clothing, motor vehicle, tools of your trade and public benefits.
How to use exemptions to keep property
Exemption limits apply to the amount of equity you have in the property, meaning, the value of the property minus the amount you owe on it. You may apply exemption amounts to secured property and keep making payments throughout your bankruptcy if your payments are current. If the amount of your allowed exemption is not enough not cover all of the equity, you may combine exemptions to save the property.
If the trustee liquidates one of your assets and distribute the proceeds, he or she will usually return the value of your exemption in the asset as a cash payment. In some instances, the trustee may elect to abandon, or forego selling property if its value is just over the exemption amount. You are allowed to keep any property abandoned by the trustee.
Non-exempt property options
If you own any non-exempt property, you may still be able to keep the property through redemption or reaffirmation.
- Redemption allows you keep a non-exempt asset by paying the creditor the value of the property in one lump-sum payment. Sometimes you may negotiate a reduced amount
- Reaffirmation allows you keep making payments on a non-exempt asset outside of the bankruptcy process. Note, however, that since the property moves outside of bankruptcy once you reaffirm it, you could lose the property if you don't keep up with the payments.
If you are considering filing Chapter 7 bankruptcy and you want to keep your possessions, contact DebtStoppers, Bankruptcy Law Firm. Our experienced attorneys will help you maximize your allowable exemptions and other options to protect your property.