If you’re considering Chapter 7 bankruptcy, you may already know that it is liquidation bankruptcy. You have to liquidate the assets that you own by selling them, you pay back the creditors with the money that you’ve made in those sales and then your bankruptcy case is closed.
This is beneficial because you may end up paying back far less than you owe. Say you have $200,000 in debt that you can’t afford, and you only have $2,000 in assets. You do lose those assets and you have to pay the $2,000, but everything else is forgiven.
However, even this can give some people pause because they’re afraid that they’ll never be able to make money again. If you’ve been worrying about this, there’s good news. You can typically keep the tools of your trade or the items that you need for your profession.
What this means moving forward
With bankruptcy, you have both exempt and non-exempt assets. You only have to liquidate the non-exempt assets. The tools of your trade generally fall into the category of exempt assets, and so that means that they will not have to be liquidated. You can retain them and still file for bankruptcy.
For instance, perhaps you are a car mechanic with thousands of dollars of tools in your garage. Or perhaps you are a musician with guitars and computers that you use to record music. It doesn’t matter exactly what your trade is, but you’ve spent a lot of money on these items and you need to use them after the bankruptcy if you’re going to continue making an income.
Thanks to this provision about exempt assets, this means that you still can earn in the future. Going forward, you have a chance to get your finances back in order. You use the bankruptcy to get rid of the debt that you have, which you couldn’t afford, and then you start budgeting again based on the income that you make with those tools of your trade.
Protecting what you need
In bankruptcy, it’s very important to know how to protect the assets that you need and how to leverage the system so that it works for you. Be sure you carefully explore all of your options.