Chapter 7 bankruptcy is known as liquidation bankruptcy. What it means is that you risk the liquidation of your non-exempt assets if you file for Chapter 7 bankruptcy. The trustee assigned to your case will be empowered to sell them off and use the money to pay back your creditors.
This approach is decidedly different than Chapter 13 bankruptcy, where you set up a repayment plan and you pay down your debt over time. It’s also a reason that people are sometimes hesitant to file for Chapter 7 bankruptcy. They’re afraid that they’re going to lose all of the assets they already have, so it doesn’t make sense to resolve their debt in this way.
There are many exemptions available
The most important thing to keep in mind is that there are a lot of different exemptions you can use. The goal is to help you get back on your feet so that you can stabilize your finances and thrive moving forward. For this reason, you may have exemptions available for assets including your home, your furniture, family heirlooms and much more. Essentially, you will only risk the liquidation of assets that you don’t need. That which you do need should stay with you.
An example of this could be if you have a pickup truck that you use for work as a contractor. You need the truck to move your tools from job to job. You plan to continue working after you file for bankruptcy, and you’re just hoping that the bankruptcy will eliminate some debt and make things more affordable. In a case like this, your pickup truck will likely be exempt, along with the tools that you use for work. But say you have a second vehicle. It’s a sports car, which cost $100,000, and you only use it to go to the track on the weekends. You’d (most likely) have to liquidate that type of asset.
Considering your options
More than 90% of individuals who use Chapter 7 bankruptcy get to retain all of their assets. You won’t have to worry about losing what you need and – very likely – won’t need to worry about losing anything at all if you file for Chapter 7 bankruptcy protection.
If you’ve been putting off bankruptcy because you were worried about losing everything you own, don’t be. Take the time to look into how the process works and all of the different legal options that you have available and seek legal guidance to make truly informed decisions as you seek to resolve your debt.