Once you file for bankruptcy, your assets come under the control of a trustee. They can sell these assets to collect money for unsecured creditors. However, filing for bankruptcy does not mean you have to give up all of your assets.
Chapter 7 bankruptcy will help you get out of most of your debts. You have to take a “means test” for filing this type of bankruptcy. If you are making a certain amount of money, you can qualify for this type of bankruptcy. But you can’t repeat this type of bankruptcy filing for 6 years.
It also prevents your creditors from going after specific assets. The assets that you are allowed to keep are known as “exempt property.” After you file the petition, all your unsecured debt can be discharged within 4 to 5 months.
Chapter 7 Bankruptcy During Covid-19
The number of bankruptcy filings grew sharply following the start of the COVID-19 pandemic in March 2020.It is estimated that the average number of monthly bankruptcy filings from April 2020 to September 2020 was 17. It was much higher than the monthly averages even after the 2008 financial crisis (11 in 2008 and 13 in 2009).
What Are the Exemptions in a Chapter 7 Bankruptcy?
Under the Bankruptcy Code, most of the Chapter 7 cases are no-asset cases. It means that you are not obligated to give up anything to the trustee. If you look at the exemption system, it has provisions that allow you to keep the assets you may need for day-to-day living. These include reasonably necessary household goods and furnishings, household appliances, jewelry (up to a certain value), your pension, etc. So, it gives you a fresh start from your debt while the exemptions give you a sense of stability.
The Bankruptcy Code allows you to protect some property from the claims of creditors. Some states have their own exemption law in place of the federal exemptions. So, you get the option of choosing between a federal package of exemptions or the exemptions available under state law.It is advisable that you consult an attorney to determine the exemptions available in the state where you live and make the final decision.
Additionally, if you and your spouse file for bankruptcy (also referred to as joint filing), you can double the exemption amount on any property you own together. For instance, you can claim a $55,800 homestead exemption by filing the petition together. It allows you to double the $27,900 homestead exemption amount for individuals.
Examples of Some Single/Joint Exemptions
Take a look at the list of exemptions that are available to debtors in most states:
- Homestead Exemption ($15,000.00 in a single case and $30,000.00 in a joint case)
- Auto Exemption ($2400.00 in a single case and $4800.00 in a joint case)
- Wild Card Exemption for Personal Property including cash assets ($4,000.00 in a single case or $8,000.00 in a joint case)
However, you should remember that there are some assets that are not exempt under Chapter 7 bankruptcy. These non-exempt assets include:
- Any secondary residential property or a place that isn’t your primary home, like a vacation house
- A second car. However, if you are filing jointly, you can claim an exemption to a certain amount
- Any investments other than retirement accounts
- Recreational vehicles such as boats or ATVs
- Valuable art that isn’t made by you
- Any luxury clothing items such as a fur coat
- Valuable jewelry (that exceeds the limit)
- Expensive collections such as coins or stamps, or other hobby equipment
- Your family heirlooms
Once you file for bankruptcy, your estate is handed over to the appointed trustee. From the estate, you can remove the exempt assets. However, the trustee may recapture some assets if they were improperly removed (preferential and fraudulent transfers). After the estate is decided upon, the trustee sells it off and distributes it to your creditors in a set order of priority.
It may be difficult to make a decision and file for bankruptcy. But, it gives you an opportunity to start afresh and still manage to protect some of your valuable property.