Understanding Bankruptcy Exemptions
In the process of filing a bankruptcy, bankruptcy exemptions determine to a large extent whether you are allowed to retain your house and car. These exemptions ensure that some property is not sold off by the bankruptcy trustee to meet the creditors. Every state has its exemption levels and you are free to go with either state or federal bankruptcy exemption. When your equity in your home or car does not exceed such exemption limits, you usually retain the same when you become bankrupt.
Keeping Your House
Saving your house is all dependent on a few factors such as the amount of equity you possess, whether you are mortgaged or not, and what are the exemptions. When the homestead exemption of your state or federal exemption completely covers your home equity, then the trustee will usually be unable to sell your house. Even though you have more than the exemption limits of your equity in Chapter 13 bankruptcy, you can still retain your home by paying the creditors under a court-approved repayment plan. It is very important to remain abreast with mortgage repayment in order to prevent foreclosure in case of bankruptcy.
Keeping Your Car
In most situations, you may maintain your car in bankruptcy provided that the equity you hold in your car is covered in entirety by your state motor vehicle exemption (or the federal exemption (now 5,025-)). In the event that you have more equity than the exempt amount, the trustee can demand a sale of the car and payment of creditors the nonexempt equity. But there are instances that you can also negotiate with the trustee not to sell your car but to pay the value of the nonexempt equity. Otherwise, when you are financing the car, it is always important to maintain the payments on time; in case you default, the financier has the ability to repossess the car even in the case of bankruptcy.
The Role of Loan Payments
It is further complicated by the fact that there is a loan on the house or car. The secured debts, such as mortgages or car loans are not eliminated when one goes bankrupt unless the property is surrendered. In order to retain these assets, you usually need to keep on paying them or that you need to make some arrangement to pay off any arrears under Chapter 13. The inability to meet the payments in time may result in foreclosure or repossession even after filing bankruptcy since the secured creditors have the right to a lien on the property.
Chapter 7 vs. Chapter 13 Differences
In Chapter 7 bankruptcy, the trustee is allowed to sell nonexempt property to settle creditors and therefore exemptions play an important role to explain whether you retain your house or car. In most instances, Chapter 7 filers having entirely exempt equity retain their houses and vehicles. Chapter 13 is more flexible in that it makes it possible to repay through repayment plans in order to secure property where the equity surpasses exemptions. This implies that you can stand a greater probability of keeping your properties in Chapter 13 through curing of debts in the long run.
Key Takeaways
- Exemptions guard some portion of your house and car in the process of bankruptcy.
- You may retain your home when the equity of your home does not exceed your homestead exemption and you remain in arrears in your mortgage payments.
- You retain your car in case its equity is not exempt and you continue paying car loan.
- In the event that the equity surpasses the exemption limits, the nonexempt amounts can be required to be paid to creditors or the property can be sold.
- The options of repayment, which can be offered by chapter 13, are needed to retain property despite the inadequacy of exemptions.
- To retain property in case of bankruptcy, it is necessary to remain up-to-date on secured loans.
The most important thing to do when filing bankruptcy is to know your exemptions and loan status so that you can know whether you will be able to retain your house and car. By hiring a bankruptcy attorney, you may get advice that is specific to your situation and that may help you preserve these valuable assets as you go through the bankruptcy process.