Filing for bankruptcy is a worst-case scenario for many. You may worry that at the end of the process you’ll end up homeless or worse than before you filed. The good news is that this is far from true in most cases.
Bankruptcy is a financial tool that should be used to build a better life. It should never put you into a hopeless scenario. In the last decade alone, there have been over 10 million bankruptcies filed in the USA. The most significant cause of these bankruptcies was medical debt.
No matter what the cause of your bankruptcy is, if you’re choosing to use this tool, the following information may be helpful. Again, it’s essential to keep in mind that these bankruptcy programs were created to help you rebuild. You will have options.
Bankruptcy Protections Can Vary By State
While the following descriptions about bankruptcy are accurate, some states define them in a way that is very different from how the average person might. In Nebraska, for example, you could lose all but $12,500 in home equity. Yes, you still keep some, but it’s not the same as being able to keep your home with no penalty. In some states, there is a property limit rather than en equity limit.
In cases like these, it pays to have a bankruptcy attorney on your side. Not only are they familiar with local and state laws and practices, but they can negotiate with creditors on your behalf. This can help you financially as well as reduce the stress and mental strain of bankruptcy.
Types of Bankruptcy
While there are more than four types of bankruptcy, two are, by far, the most popular when it comes to resolving the personal debt. The other “chapters” are for specific groups like family farmers or local entities. Below is information on what would happen to your home and assets if you chose one of the two more popular routes.
What Happens to Your Home and Other Assets During Chapter 7 Bankruptcy
During a Chapter 7 bankruptcy, there are a few options when it comes to what assets you get to keep. In most cases, with repossession, you will get to keep your home or vehicle if they are less than a specific value. In other areas, you may be able to set up a plan or agreement to remain in debt for the amount of a car loan even after bankruptcy.
The problem with this is if your home is more than that value it may be seized and sold. For example, if the state limit is for $50,000 in home equity and your home is only worth $45,000, then you get to keep your home. However, if the limit is the same, but your home is worth $55,000 or more, it may be seized and sold.
In other states and areas, however, several exemptions will allow you to keep many of your assets if not all of them. These exemptions allow you to keep many of the things necessary for everyday life and less than a given value.
If, however, you begin to file for Chapter 7 and then realize that many if not all of your assets would be seized, including your home, it’s possible to switch to a Chapter 13 bankruptcy. Still, given how much this may complicate your case, you may want to enlist the help of a professional. This will help ensure that everyone gets the correct paperwork and each step in the bankruptcy process goes smoothly, and any requirements on your part are met promptly.
What Happens to Your Assets During Chapter 13 Bankruptcy
If you’re worried about losing your home, car, or other assets, then Chapter 13 may be a more appealing option. With this form of bankruptcy, instead of having your debt cleared and many of your assets seized, you are put on a payment plan and allowed to catch up on your payments.
With this type of bankruptcy, you get to keep all of those assets, but you’re still responsible for paying all of your debt. However, in many cases, the interest on your debt or even the total balance may be reduced during the bankruptcy negotiations.
It’s Likely You’ll Be Able to Keep Your Home or Car After Bankruptcy
Due to all of the variables mentioned above, what happens to your assets isn’t easy to determine without knowing the full situation. However, with all of these programs, there are many ways to work out a way to keep your home, car, or other non-luxury assets to help you rebuild your life or continue to pay your debts (in case of Chapter 13.)
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