One of the common misconceptions about filing bankruptcy is that you will lose everything you own. While losing some of your assets is possible, the two most utilized forms of personal bankruptcy offer options for maintaining much of your personal property.
- Chapter 13 is defined as a reorganization bankruptcy. Borrowers pay their debt obligation according to a court-approved payment plan.
- Chapter 7 is classified as a liquidation bankruptcy. In theory, borrowers won’t have to pay their debts, but the assigned Trustee may liquidate their assets. However, not all assets are eligible for liquidation. A knowledgeable bankruptcy attorney can help filers to keep the majority, if not all, of their personal assets.
Ways to Retain Property in Bankruptcy
- Reaffirmation of Debt: In a reaffirmation situation, the borrower voluntarily agrees to pay the money they owe creditors. It is typically applied when the debt has collateral the borrower wants to retain, such as their vehicle. Reaffirmation agreements are entered into voluntarily and are not forced by the courts. However, all voluntary reaffirmation agreements must be approved by the bankruptcy court. (Read more about Reaffirmation Agreements here) Note: If the borrower stops making payments on a vehicle loan after agreeing to reaffirmation, the lender is allowed to repossess the vehicle, and the borrower becomes personally liable for the debt balance.
- Redemption of Property: Another strategy to prevent liquidation is to redeem the property. In a property redemption, the borrower pays the loan in full with a lump sum and owns it free and clear of any liens.
- Protect Assets with Available Exemptions: An exemption removes the potential of an asset (or part of an asset) from being liquidated. There are federal and state bankruptcy exemptions, but Florida state exemptions override federal guidelines. This state’s exemptions apply if a personal bankruptcy case is filed in Florida. These may include:
- Homestead Exemption: Florida’s homestead exemption is one of the most robust in the nation, protecting all of the equity in a personal home. To take advantage of the homestead exemption, a resident must be domiciled in Florida for 730 days before filing for bankruptcy.
- Wildcard Exemption: Those not claiming the homestead exemption are eligible to receive the “wildcard exemption.” This exemption provides the filing party with $4,000 to apply to any piece of property, such as vehicles, jewelry, or personal heirlooms. This exemption allows the petitioner to choose what is protected because it holds personal importance and meaning.
Other exemptions may apply to your personal bankruptcy circumstances. Be sure to consult with a bankruptcy attorney to understand your options.
Hiding Assets During the Bankruptcy Process
You may think that if you hide or transfer assets during a bankruptcy, you may be able to keep them. This is one of the most common types of fraud in these types of proceedings.
Hiding assets from the Trustee and courts, primarily via transfer of title, is ill-advised as it violates the bankruptcy code and may carry heavy penalties.
When property title is transferred to a third party with the intention of avoiding payment to creditors, it is considered fraudulent. Even if the transfer was not intended to defraud creditors, it may be regarded as fraudulent according to the court. The Trustee has the right to prohibit the discharge of debts or avoid transfers that took place before the bankruptcy filing.
It may seem prudent and responsible to dispose of assets prior to bankruptcy, but the rules surrounding this issue can be confusing. Therefore, it is best to consult with a bankruptcy attorney before transferring any property by any method. This will protect you from inadvertently committing a fraudulent act.
Call Us Today
The law offices of Richard V. Ellis are here to help Sarasota residents considering bankruptcy. We have helped hundreds of families and businesses navigate this process successfully and are ready to help you.