Many individuals struggling with financial problems – stemming from things such as divorce or medical issues – may find relief through filing for bankruptcy.
Among the most common types of bankruptcy, chapter 7 filings are notable for how they require an individual to sell off their assets. This comes at great personal cost as many items acquired by the debtor are often used to pay outstanding debts.
Despite their reputation, Chapter 7 bankruptcies do allow debtors to retain assets. The process is complicated, but the outcome could save some of your long-held properties.
What is protected?
There are two ways property can be saved from liquidation by a chapter 7 bankruptcy. The first way is using local exemptions and the second is through reaffirmation.
Bankruptcy exemptions are one of the primary ways assets are protected from liquidation. Debtors may apply for state exemptions when filling out the bankruptcy application form. Using exemptions, most Americans may be able to protect their property.
Reaffirming works different than exemptions. Using exemptions takes advantage of government solutions to bankruptcy settlements. Debtors can choose to work out an agreement with creditors which will allow them to keep possession of certain assets, such as a home or automobile.
When a debtor works out a reaffirmation agreement with a creditor, they agree to retain liability for debt owed to that creditor in exchange for the creditor agreeing to not repossess the asset. For the debtor to do this, they must prove that they can make the payments required in the reaffirmation agreement.
Working through chapter 7 bankruptcies
A chapter 7 bankruptcy can be tricky to navigate. Keeping your property through a chapter 7 filing is not guaranteed. But many debtors can retain some assets in the end either through exemptions or reaffirmations. Knowing this can make the idea of filing a chapter 7 bankruptcy less daunting.