For some people, filing for personal bankruptcy or consumer bankruptcy can help them get a fresh start financially. Many people believe that they will lose some or all of their property after claiming bankruptcy, but that isn’t necessarily true.

A person filing for bankruptcy can usually keep some of their property, depending whether they filed a Chapter 7 or Chapter 13 bankruptcy.

Many can use bankruptcy exemptions that will allow you to keep certain amount of property so that you can make a new start after your have filed for bankruptcy and paid the majority of your debt.

Also, each state allows you to exempt a certain amount of equity in your personal property and your house. So whether a trustee will sell your property depends on the amount of equity you have in the property and your state’s exemption laws.

If you have no equity in your house or personal property, then you do not have to worry about the trustee taking them.

What’s the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

For personal bankruptcy, a person can either file under Chapter 7 or Chapter 13 bankruptcy. 

  • Chapter 7 bankruptcy, also known as “liquidation bankruptcy”, allows a debtor to erase all debt that is legally capable of discharged. However, there are certain Chapter 7 bankruptcy rules that determine who qualifies, how to file for bankruptcy and what type of debt is eligible for discharge.
  • Chapter 13 bankruptcy is a type of bankruptcy where the debtor will repay most of their debts. The remaining debt will either be discharged or will be repaid through the sale of the debtor’s property. "Discharge" means that the debtor will no longer be legally obligated to pay back the debt.

The property kept after claiming bankruptcy will largely depend on whether the person has filed under Chapter 7 or Chapter 13 laws.

What are Exemptions and Exclusions?

Certain types of property are exempt from Chapter 7 laws. These are known as Chapter 7 exemptions, meaning that the assets may be factored in when calculating bankruptcy amounts. 

However, the person may be allowed to keep a portion or percentage of the asset that is considered “exempt” from the proceeding. Creditors can’t reach the amounts that are considered exempt. Chapter 7 exemptions may include:

  • Some equity in automobiles and other vehicles
  • Many retirement accounts such as 401k and pensions
  • Household goods
  • Clothing
  • Jewelry

What Other Options Do I Have for my Property After Bankruptcy?

In some cases, it may be possible to buy back your property after a creditor has claimed it. This can be the case if you have the resources, since most creditors aren’t really particular about where the payments come from - just as long as you have the money.

This might be a good option especially if the property has some sort of sentimental value to you. Another option if you don’t have enough exemptions to protect your property from bankruptcy is to file for Chapter 13 bankruptcy instead of Chapter 7.

In Chapter 13 bankruptcy, you get to keep all property including nonexempt assets. However, you will have to pay your unsecured creditors an amount equal to the value of your nonexempt property.

Should I Hire a Lawyer for Help With Property and Bankruptcy Issues?

Understanding how property and bankruptcy overlap can sometimes be confusing.  It’s in your best interest to hire a local bankruptcy lawyer for advice regarding property kept after filing bankruptcy. 

You might not be aware of the different options that are available to you, but your lawyer can explain how bankruptcy laws affect you, and can represent you in court during hearings.