Do Creditors Take Belongings in Bankruptcy?

Sacramento Bankruptcy Lawyer Rick MorinPotential bankruptcy filers often ask me “can I keep X if I file for bankruptcy?” 9.5 times out of 10 the answer is “yes.” This is where the rubber hits the road in Chapter 7 bankruptcy. Keep reading to learn more about the property you can and cannot keep in a bankruptcy.

Chapter 7 is a Liquidation Bankruptcy

The bankruptcy court discharges unsecured debts in a Chapter 7 bankruptcy. The court can also seize property for the benefit of the bankruptcy filer’s creditors. Property that is taken is called “unexempt” property.

A Bankruptcy Trustee typically sells unexempt property at an auction. The Trustee uses the auction proceeds to pay down some or all of the debts that are being discharged by the court.

Don’t worry though. There is much more to the story.

Most Bankruptcy Filers Don’t Lose Any Property in Bankruptcy

95+ percent of all Chapter 7 filers don’t lose any property during bankruptcy proceedings. A savvy bankruptcy filer can protect most if not all of their property. This is called “exempting” property. In California, a debtor can exempt a home, cars, boats, jewelry, and even cash in the bank. Keep in mind: each case is different.

Property that is fully exempt cannot be seized by the court. Most bankruptcy filers in Califonria don’t have any unexempt property, so they don’t lose anything during their case.

What property is exempt versus non-exempt? Great question!

California Law Specifies Bankruptcy Exemptions

Very specific provisions in California law define which bankruptcy exemptions available to a debtor. A bankruptcy filer should consult with a qualified attorney before deciding which set of bankruptcy exemptions to utilize. One set of exemptions is better for homeowners with equity in their home. Another set of exemptions is better for debtors without a home or without any equity in their home.

Going it Alone in Chapter 7 is Risky

The big risk in a Chapter 7 bankruptcy is not applying the appropriate exemptions to your property. Running out of bankruptcy exemptions can also spell trouble.

Careful pre-petition analysis is required to successfully emerge from Chapter 7 without losing any property. Making the wrong decisions prior to filing can have disastrous consequences. This is one of the reasons why it is so important to hire a great bankruptcy attorney.

Be careful about exempting all of your property prior to filing for Chapter 7 bankruptcy. I can help you with this process from start to finish. Please call my office at (916) 333-2222 to discuss your bankruptcy options.