In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13.
However, some of your creditors may have a "security interest" in your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt.
Bankruptcy does not make these security interests go away. If you don't make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.
Keeping Your Collateral After Filing Bankruptcy
There are several ways that you can keep collateral or mortgaged properties after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth.
In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.
In a chapter 7 case, you can keep all property which the law says is "exempt" from the claims of creditors. You can choose between your exemptions under your state law or under federal law. In many cases, the federal exemptions are better.
The amounts of Federal exemptions are constantly changing and presently include:
· Approximately $24,450 in equity in your home;
· Approximately $3250 in equity in your car;
· Approximately $475 per item in any household goods up to a total of $9850;
· Approximately $1850 in things you need for your job (tools, books, etc.);
· Your right to receive certain benefits such as social security, unemployment compensation, veteran's benefits, public assistance, and pensions–regardless of the amount.
Determining If Your Property Is Exempt
In determining whether property is exempt, you must keep a few things in mind.
The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.
Also, you only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000 which is your equity if you sell it.
While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind.
In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn't file bankruptcy.
If you have further questions call or email attorney Rex Anderson. Rex is a consumer lawyer suing abusive debt collectors across Michigan in Federal Courts. Rex helps people from all over Michigan, including Mount Pleasant, Flint, Bay City, Saginaw, Lapeer, Traverse City and Detroit. Rex also helps folks get a fresh start discharging their debts by declaring bankruptcy.
Collaborative Writing by Rex C. Anderson, Esquire and Contributing Research/Writing by Kellye S. Smith
