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What can be taken by creditors during bankruptcy?


Filing for bankruptcy can be stressful, and those considering doing so should be aware of just what assets could be at stake.

For those in Florida who owe a lot of debt, the accumulation of money owed can get greater and greater, until it eventually becomes impossible to pay everything off via normal means. Those who owe money on a home mortgage, student loans, medical bills and other common causes of debt may find it impossible to see the surface beyond the layers of debts under which they are buried. In circumstances such as these, it may be time to declare bankruptcy. Those who are looking into declaring bankruptcy should be aware of which of their assets can be liquidated and claimed by creditors. This depends first on which type of bankruptcy has been filed.

Differences between Chapter 7 and Chapter 13 bankruptcies

Chapter 7 bankruptcy is available to business entities as well as to individuals, whereas only individuals can file for Chapter 13. Chapter 7 is liquidation and it involves selling off the debtor’s property to pay off any debts. Property and assets are thus “liquidated.”

In Chapter 13 bankruptcy, the property of the debtor can be protected, but he or she will still be required to pay off an agreed-upon amount. Chapter 13 involves coming up with a payment plan that can take three to five years and does not typically involve the liquidation of assets.

In theory, the end goal of Chapter 7 is to be able to repay the entirety of what the debtor owes, but there are certain assets that can be exempt from being drawn on to pay off debts. Florida is a so-called “opt-out” state, meaning that property exemptions are determined under Florida law, not the federal exemption scheme. Florida law lets the Chapter debtor keep certain property, including (in most situations) his or her home of any value, $1,000 in personal property, $1,000 of value in a vehicle and, in defined circumstances when no homestead exemption is claimed, an additional $4,000 in personal property of choice.

What is at stake in each type of bankruptcy?

One example of what can happen is that someone files bankruptcy because he or she cannot pay off a car or house. When filing for Chapter 7, there is a limited amount of time during which the debtor has a chance to bring the loan current. If he or she cannot pay it off shortly after filing, the creditor can get permission from the court to take back the car or home. In Chapter 13 bankruptcy, this doesn’t happen, but instead the debtor agrees on a set amount of time over which the payment can be made, effectively extending the amount of time the debtor has to pay off what he or she owes. It is also possible for a creditor to gain access to inheritance money, outstanding lawsuit settlements and cash advances, as these are all considered assets when filing for bankruptcy. Those looking to protect their assets may find Chapter 13 bankruptcy to be a more viable option if it is available.

Anyone attempting to file bankruptcy in Florida will want to protect their assets to the best extent possible. An attorney in the local area who practices bankruptcy law may be able to help provide consultation and representation.

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