Chapter 7 bankruptcy has many advantages, and this is why it is a very popular choice for those who are struggling with overwhelming debts. However, as in all bankruptcies, there are some sacrifices that need to be made.
Chapter 7 bankruptcy is often known as liquidation bankruptcy. This is because it involves debtors liquidating many of their assets so that their debts can be paid off. This is why Chapter 7 bankruptcy is typically more suited to those with fewer assets because once you have liquidated all non-exempt assets, you’ll likely be subject to having all debts written off.
If you are worried about losing all of your assets by filing for Chapter 7 bankruptcy, you should take the time to understand the federal exemptions that are in place.
Federal bankruptcy exceptions
It’s a myth that you’ll be without any assets at all after filing for Chapter 7 bankruptcy. Some assets are protected from liquidation, which means they can’t be sold to pay off debts. Each debtor can keep up to $20,000 in the value of their home federally. State homestead exceptions differ widely.
You’ll also be able to keep a vehicle as long as its equity does not go above the maximum value, which was set at $3,225 in 2010. There are also exceptions for personal property such as clothing jewelry, furnishings and appliances.
If you are considering Chapter 7 bankruptcy but you are concerned about the liquidation process, it is important that you understand what exceptions you will be able to benefit from. By learning more about this, you’ll be able to make a more informed decision.