Will I Lose Everything?Will I lose everything is probably the most asked question from someone contemplating bankruptcy. There are a lot of myths and some confusion over this question. It can be really confusing and I do recommend speaking with an attorney before deciding to do anything. In general, the answer is no, you won't lose everything. In fact well over 95% of bankruptcy cases filed by individuals are what are called "no asset" cases. These are cases in which you keep everything you own. That's because there are exemptions that provide for assets that you can keep and some assets, like pensions, cannot be touched by the trustees and creditors.
The whole idea of a bankruptcy is to give you a fresh start. If you lose everything, that's not giving you anything to start with. That means that the exemption system is there to allow you to keep the things of your daily living, free from the claims of your creditors.
What Is Exempt?Exemptions: Exemptions are the lists of the kinds and values of property that is legally beyond the reach of creditors or the bankruptcy trustee. You get to keep the exempt property. What property may be exempted is determined by state and federal statutes, and varies from state to state.
According to the bankruptcy law, each state varies the bankruptcy code exemptions. There are federal exemptions but some states are allowed to opt-out in favor of their own exemptions. Again, it is advisable to consult your local attorney to find out about your state. Since your Pension plan or 401(k) plans is not considered to be a part of your estate, you don't have to exempt the plan and you do get to keep it. It is possible that your IRA's or other retirement plans may be the property of your estate. Most often they are not and are usually exempt. The 2005 changes to the Bankruptcy Code increased the exemption for IRA's for all debtors, regardless of state of residence, to $1million.
Your household goods and personal things really have very little resale value. This means that the trustee could not sell them for enough to repay your creditors. The good news is that you won't lose everything.
Can I Keep My Car?
Can I keep my car?
Probably.
If you still owe money on the car, you can choose to reaffirm the debt to the secured lender, keep the car, and continue paying under the existing terms. If you don't want to keep the payments on the car, of course you can give up the car and be free of any obligation to pay for it. The Trustee will not take your car if there is no equity. You can subtract any car loan and exemption from the car's present sale value to determine if there is any equity in the car. If there is any equity over and above the value of the exemptions available, you can usually buy any unprotected equity from the Chapter 7 trustee.
Will I Lose My House?
Will I lose my house if I file bankruptcy? Probably not.
What you need to determine is the amount of equity in your home. If there is no equity, which means what you could sell it for today, minus the cost of selling it, including all of the liens is less than what you owe, then you can keep it as long as you continue to make the payments. A bankruptcy does not wipe out the liability for liens, like your mortgages or deeds of trust, or tax liens. That means if you don't continue to make the payments you will be looking at foreclosure from the lenders. If there is equity in your home, then you need to determine whether the exemptions available to you equal or exceed the equity in your home. If the equity is all exempt, you can keep the house. Remember though that you still need to make those payments. New Help For HomeownersHomeowners may have a better chance of saving their homes using the bankruptcy code thanks to Citigroup's turnaround on a process called cram-down. If cram-down becomes an option for bankruptcy judges, they can alter the terms of mortgages (often reducing the amount of principal due) to make it affordable for someone to stay in their home. Other changes could include reducing a loan's interest rate or extending its length.Democrats have called for adding cram-downs to the bankruptcy code since 2007, but the banking industry has fought it. Now with banks taking so much bailout money, it's time to pay the piper. Now that there appears to be an agreement with the banks, the Democrats plan to add a cram-down provision to the economic stimulus plan moving through Congress. There will be some limits though. If the law passes, only mortgages entered into prior to the date of enactment of the bill will be eligible for cram-down. Homeowners also will need the show that they tried to negotiate with their mortgage holder. They must contact their banker at least 10 days before filing for bankruptcy to give the bank an opportunity to negotiate.
Now that the banks have been bailed out, it's time to use some of those bailout funds to help Main Street as well. Hopefully, knowing that cram-downs are an option for bankruptcy judges, banks will start negotiating with homeowners to modify loans rather than just twiddle their thumbs and wait until they can foreclose.
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