Keeping Your Home, Car and Other Assets in Bankruptcy

Filing for bankruptcy can be an overwhelming process. One of the biggest concerns for many people is whether they will be able to keep their home, car and other valuable assets. The good news is that in most cases, you can keep your house and car when filing for bankruptcy. This article will explain how it works.

Can I Keep My House If I File for Bankruptcy?

Yes, in most cases you can keep your house when filing for bankruptcy. Here’s how it works:

• The bankruptcy process allows you to keep property that is part of your bankruptcy estate. Your ability to keep this property is called “exemptions.”
• The homestead exemption allows you to keep all or part of your home. Every state has its own homestead exemption laws.
• As long as you keep making your mortgage payments, and there is little or no equity in the home, you can usually keep it.
• Filing Chapter 13 bankruptcy is designed specifically to allow you to keep your home. You work out a repayment plan with the court to catch up on any missed payments.
• Even in Chapter 7 bankruptcy, you can sign a reaffirmation agreement with your lender to keep making payments and hold onto the house.

The bottom line is that bankruptcy laws recognize that preserving your home is essential. So unless you have significant equity built up in the house, you can usually find a way to keep it even when filing for bankruptcy.

Can I Keep My Car If I File for Bankruptcy?

As with a house, you can typically keep your car when filing for bankruptcy if:

• You are current on your car loan payments
• There is little to no equity built up in the vehicle
• You continue making the payments and sign a reaffirmation agreement (for Chapter 7)
• You work out a repayment plan with the court to catch up on any missed payments (for Chapter 13)

Since most people have car loans that exceed the value of their vehicle, they are usually able to keep the car as long as they stay current on the loan.

Other Assets You Can Keep

In addition to your home and car, here are some other assets you may be able to keep in bankruptcy:

• Retirement accounts – 401(k)s, IRAs and most retirement plans are protected in bankruptcy. However, you may have to cash out or borrow against retirement funds to help pay creditors.
• Life insurance policies – The cash value of life insurance is usually protected, but you may have to cash it out.
• Household goods – Furniture, appliances, clothing and other personal items are usually protected up to a certain value.
• Jewelry – Wedding rings and heirlooms may be protected, but other jewelry may have to be sold.
• Tools of trade – If you are self-employed, tools and equipment used for your work are often exempt.

The exemptions and protections vary by state, so check with a bankruptcy attorney to understand exactly what assets you can keep where you live.

How to Keep Assets in Chapter 7 Bankruptcy

Here are some tips for keeping assets in a Chapter 7 bankruptcy:

• Review your state’s exemption laws – This will tell you what assets are protected.
• Avoid cashing out exempt assets – Don’t take cash out of protected accounts as that money will become part of the bankruptcy estate.
• Keep making payments on secured debt – To keep assets like a house or car, remain current on payments.
• Sign reaffirmation agreement – You can sign an agreement with secured lenders to keep making payments on protected assets.
• Convert to Chapter 13 – If you risk losing assets in Chapter 7, you may be able to convert to a Chapter 13 filing instead.

How to Keep Assets in Chapter 13 Bankruptcy

Chapter 13 bankruptcy is specifically designed to allow you to keep assets, as long as you have regular income to make payments under a court-approved repayment plan. Here are some tips for keeping assets in Chapter 13:

• Work with the trustee to create a realistic budget and payment plan.
• Arrange to cure any arrearages on secured debt like a home or car loan.
• Make sure your repayment plan lasts 3-5 years to have time to catch up.
• Get court approval for any large asset purchases or sales during the plan.
• Communicate with the trustee if you have trouble making plan payments.
• Consider selling non-exempt assets to raise money for payments.

Options If You Can’t Keep Your Assets

While bankruptcy allows you to keep many assets, you may have to surrender some property to settle your debts. Here are some options if you can’t keep assets in bankruptcy:

• Negotiate to keep it – You may be able to work with the trustee to find a way to keep certain assets if they are essential.
• Sell it yourself – Consider selling assets like a second car or valuable collections to raise cash before filing.
• Let it be repossessed – You can surrender secured property and just let the lender repossess items you can’t afford.
• Convert to Chapter 13 – See if Chapter 13 repayment plan allows you to keep assets you would lose in Chapter 7.
• Redeem the asset – You can pay the lender the market value of some assets to keep them.

While giving up property is difficult, it allows you to get a fresh start so you can start rebuilding your financial life.

Mistakes That Can Cost You Assets

Unfortunately, some common bankruptcy mistakes can result in losing property that you hoped to keep. Avoid these pitfalls:

• Failing to list all assets – Any property not disclosed may be taken later to pay creditors.
• Undervaluing assets – Be honest when estimating the value of your property.
• Hiding money or property – The court will find out and you could face charges of bankruptcy fraud.
• Cashing out retirement funds – Money taken from exempt accounts may have to go to creditors.
• Missing payments on secured debt – You have to stay current on mortgages, auto loans, etc. to keep the assets.
• Not knowing your state’s exemptions – Educate yourself on what protections you have for assets.

Consult with an experienced bankruptcy attorney so you understand exactly what you need to do to keep your assets protected throughout the bankruptcy process.

Alternatives to Bankruptcy

While bankruptcy can allow you to keep your home, car and other assets, it still carries a social stigma and can hurt your credit for years. Before deciding to file, be sure to explore some alternatives like:

• Credit counseling – Nonprofit agencies can help negotiate better repayment terms.
• Debt management plans – Consolidate debts into one monthly payment through a DMP.
• Debt settlement – You may negotiate a lump sum payment for less than you owe.
• Refinancing – Take advantage of lower rates to reduce mortgage or car payments.
• Borrowing – Consider a home equity loan or cash-out refinance to pay other debts.
• Selling assets – You may generate cash by selling non-essential assets.

While not always ideal, these options could help you resolve debts while avoiding bankruptcy altogether.

The Bottom Line

The good news is that bankruptcy does allow you to keep your home, car, and other essential assets in most cases. To increase your chances of holding onto property, understand the exemptions where you live, know which chapter suits your situation, keep making payments on secured debt, and avoid common mistakes. If giving up some assets becomes necessary, explore all alternatives before allowing repossession or surrender. With careful planning, you can often file bankruptcy and still keep your most important assets.