subject: Will I Lose Property If I File Bankruptcy? [print this page] Most people know that filing bankruptcy does not mean a family being put out in the street with no property. Yet some still worry about this.
Every state has laws called exemptions, which protect personal property. The amount of protection differs from state to state. It is true that a person who files for bankruptcy can keep his property, furniture, clothing, bed, stove, and other daily living items.
Further, these exemptions also apply to your house and car. In fact, Florida and Texas have unlimited residence exemptions. In those states you can literally have a mansion on the hill paid for and still file a Chapter 7 and wipe out all of your credit card and medical debts.
In other states, the exemption for a home varies from a low of $5,000 to typically $20-$40,000. Similarly, protection for equity in an automobile varies greatly from $1000 to as high as $7500. Therefore, you can see that it matters a great deal where you live if you are thinking about filing a bankruptcy.
Recently, in 2005, the law was changed to make it more difficult to move to another state to take advantage of what might be a better exemption situation. Now, in order to use the exemptions of a state where you live, you have to live there for about 2 1/2 years.
People sometimes consider selling the property to a relative before they file bankruptcy. This is a mistake. Bankruptcy laws require that you disclose these transfers in your bankruptcy petition. If you have sold property for less than what it is worth, or if you give it away, the person to whom you sold the property could be sued in your bankruptcy. So, it is wise to discuss these issues with a qualified bankruptcy attorney before taking any action.
Although the natural instinct we have is to want to keep all of our property, sometimes it makes more sense to let certain things go. For example, if you have an automobile that has a serious mechanical problem or is simply getting too old, it might be better to let this car go back to the creditor in your bankruptcy. Frequently, we see that cars have been used as collateral for loans and there is much more owed on the loan than the car is worth. We frequently see situations where over $10,000 is owed our car that is worth less than $1000. Therefore, in these situations, although it may be inconvenient to replace the automobile, it is far better to discharge the $10,000 debt and surrender the vehicle to the creditor, than to pay $10,000 for car that is worth no more than $1000.
