What Happens to my Property if I File for Chapter 7 Bankruptcy?

What Happens to my Property if I File for Chapter 7 Bankruptcy

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The answer to that question really depends on the value of the assets listed in the Chapter 7 bankruptcy filing. The process for a Chapter 7 filed in California includes the division of all property of the debtor at the time of the filing into an exempt and a non-exempt category. In this context, exempt property would be kept by the person filing the Chapter 7 while property categorized as non-exempt would be surrendered to the court. Assets, such as a home with equity over and above the $100,000 homeowner's exemption could be classified as non-exempt property which would be allocated toward paying the creditors which are listed in the bankruptcy filing. The determination of whether property will be exempted or not requires a detailed analysis of a filer's financial circumstances. This advance analysis one of the main reasons to work with an experienced bankruptcy attorney prior to doing a filing.

If a Chapter 7 is already in progress, the chances are that the results of the means test have indicated that your real property is going to be exempt. The end result will be that you will be able to keep it as long payments on it are maintained. Prior to a filing, there are two agendas in California to choose from for the purpose of calculating the most beneficial list of exemptions. Both schemes are based on the $100,000 homeowners' exemption but vary greatly in their value caps and methodologies. Each agenda is complicated in its calculation process and is best navigated by an experienced bankruptcy attorney, especially if multiple assets with potential equity are involved. For the best results, calculating the equity in the home should be done using its forced liquidation value instead of a regular market value to arrive at a real world valuation of equity. Once the home's liquidation value is calculated, the selling costs and remaining mortgage balance should be taken out to calculate the true equity.

Regarding personal property, a Chapter 7 bankruptcy in California allows for exemptions on a variety of items. These exemptions include vehicles, furniture, personal effects, retirement plans, in-force life insurance, personal injury awards, earned income, pets, and other miscellaneous property. The value of this property will figure in to which agenda should be used to determine exemptions, so great care should be taken when deciding on which agenda makes the most sense. The value caps in the different agendas can result in exempt items becoming non-exempt if, for example, a filer owns a valuable collection. Again, having these formulas navigated by an experienced bankruptcy attorney can make the difference between keeping valuable assets and losing them to the bankruptcy court.

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