If you are considering bankruptcy, one of your biggest concerns may be whether you will lose your home, car, retirement savings, or other property. The good news is that filing for bankruptcy does not automatically mean losing everything. In fact, the Federal Bankruptcy Code provides exemptions designed to help filers protect certain essential assets and move forward with greater financial stability.
Below, KingSpry Bankruptcy Law Attorney, Eric J. Filer, Esq., outlines how bankruptcy may impact your home, vehicle, and retirement accounts and explains the protections that may be available.
Exempt v. Non-Exempt Assets
When a debtor files for Chapter 7 bankruptcy, the bankruptcy trustee will review the debtors’ assets to determine whether any property may be sold to pay off creditors. However, Federal and State exemptions allow many filers to protect certain assets from liquidation.
The following assets are generally exempt from liquidation up to a certain dollar amount:
- Equity in your primary residence
- Household goods
- Appliances
- Clothing
- Tools of trade
- Motor vehicles
- Retirement accounts
- Pensions
- Life insurance policies
The bottom line is that most filers do not lose everything when they file for Chapter 7 bankruptcy. Instead, many qualify for exemptions and are able to keep their essential assets, providing a foundation for a fresh financial start once the bankruptcy proceeding concludes.
Filers with significant non-exempt assets, however, may face a greater risk of losing property in a Chapter 7 bankruptcy. Fortunately, they may have other options. For example, in a Chapter 13 bankruptcy, eligible filers are able to regain control over their finances by making installment payments to creditors over three to five years. This allows them to keep important assets and catch up on missed payments. This is why understanding the difference between Chapter 7 and Chapter 13 bankruptcy and consulting with legal counsel is important before filing a bankruptcy petition.
Protecting Your Home
The Homestead Exemption. Under the Federal Bankruptcy Code, debtors may be able to keep their home under the homestead exemption. So how does it work? For individual filers, the federal homestead exemption protects up to $31,575 of equity in a primary residence during bankruptcy ($63,150 for joint filers). When the statutory amount fully covers a filer’s equity, the bankruptcy trustee cannot force a sale of the home. When a filer’s equity exceeds the statutory limit, the excess is non-exempt property. This means the home may be sold, but the filer will receive the exempt amount in cash to help them “start over.”
When it comes to protecting your home, eligible filers may consider filing for Chapter 13 bankruptcy instead of Chapter 7. Chapter 13 is generally more suitable for homeowners who are behind on payments because they can catch up on mortgage arrears by following a repayment plan. Chapter 13 is designed to help filers keep their homes, which is another factor prospective filers should consider.
The bottom line is that filing for bankruptcy does not automatically mean losing your home. The outcome depends on several factors, such as your equity, exemption options, mortgage status, and whether Chapter 7 or Chapter 13 is the better fit.
Keeping Your Car
Under the Federal Bankruptcy Code, debtors may be able to keep their vehicle under the motor vehicle exemption. This exemption works similarly to the homestead exemption, protecting up to $5,025 of equity in a vehicle.
Preserving Your Retirement Account
Federal and Pennsylvania law generally protect retirement savings during bankruptcy, including IRAs, 401(k)s, 403(b)s, Keogh plans, pensions, most defined benefit plans, and Social Security benefits. This means, in most cases, filers do not need to liquidate their retirement assets to pay off creditors.
Why Legal Guidance Matters
Before attempting to move, transfer, or spend any assets, individuals considering bankruptcy should seek legal advice about their specific financial situation and eligibility. Transferring assets to avoid creditors can lead to serious legal consequences, including asset seizure, denial of discharge, or fraud charges.
While prospective filers may take action in fear of losing certain assets, it is often unnecessary. In many cases, debtors are able to protect their property through legal bankruptcy exemptions.
If you are worried about what bankruptcy could mean for your home, vehicle, retirement accounts, or other property, speaking with an experienced bankruptcy attorney can make all the difference. Professional guidance helps filers understand their options, protect their assets, and avoid costly mistakes—giving them the best path toward a fresh financial start.
At KingSpry, our experienced Bankruptcy Law Practice Group helps individuals and businesses find the best path toward financial relief and a fresh start. If you have questions, contact our bankruptcy team for personalized guidance you can count on.
This article is a publication of KingSpry’s Bankruptcy Law Practice Group. This article is meant to be informational and does not constitute legal advice.
