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What property can you keep in a Chapter 7 bankruptcy?

During a Chapter 7 bankruptcy, you generally liquidate many of your assets in order to cover the costs of the bankruptcy -- namely, making some sort of settlement payment on debts. Because bankruptcies are meant to be used as a legal tool to clear the slate and help individuals restart financial lives, courts usually don't aim to take everything away from a person. Some property can be exempted during a bankruptcy, but doing so does require that you complete bankruptcy paperwork and procedures a certain way.

Certain types of motor vehicles, particularly a family car or vehicle that is used to travel to and from work, can be exempted. Value caps might exist for the exemption, which means you're more likely to be successful seeking exemption for a basic sedan than a luxury car. Other items of necessity that can be exempted include clothing, furnishings and household goods. The value of these items must be reasonable, so if you have an abundance of items or items the court deems unnecessary for daily living, you might have to give up some items.

Household appliances, such as refrigerators and stoves, can be exempted, as can jewelry up to a certain amount. A portion of your home's equity may be exempted, as can a portion of unpaid earnings you are owed.

Other items that might be exempted include pensions, tools of your trade, public benefits such as welfare and damages received for personal injuries. Items that are usually not exempted include second homes or vacation properties, second vehicles, musical instruments not used for work, bank accounts and cash, family heirlooms and valuable collections such as stamps or art.

Source: FindLaw, "Exempt vs. Non-exempt Property Under Chapter 7," accessed July 10, 2015

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