Chapter 7 Bankruptcy And Assets: Wil I lose my car?
On behalf of Bankruptcy Law Firm of Clare Casas on Saturday, April 23, 2011.
Not every bankruptcy case is a "no-asset" case. A Chapter 7 is called a "liquidation" bankruptcy for two reasons: 1) you liquidate all of your debts; and 2) the trustee has the right to liquidate all unprotected assets for the benefit of the creditors.
A no-asset case is one that doesn't have any assets for a trustee to administer. Florida law gives bankruptcy filers $1,000 with which to protect personal assets and $1,000 to protect a motor vehicle (can be a car or motorcycle). If you do not claim homestead exemption (you rent instead of having a mortgage), you also get a wild card exemption of $4,000 to protect property with.
Sometimes clients want to transfer assets right before a bankruptcy so they don't lose them. Bad idea. Doing so is bankruptcy fraud and it is always better to simply plan for the assets within the bankruptcy case then to do something that could have criminal consequences.
So what happens with assets in a Chapter 7 bankruptcy case? You have two choices. You can either pay the trustee the value of the asset and keep it or you can turn the asset over to the trustee and he/she will sell it and liquidate the asset for the benefit of the creditors. The trustees in this area will work with you if you need to make payments for a short time (six to eight months is the norm) or they may settle for a lump sum payment that is less than the amount owed.
Even if your case is an asset case, the odds are that you are still wiping out a huge sum of debt for a fraction of what you owe. Ask yourself: If my creditors had gotten together and offered to cancel my debt for $5,000, would I have taken it? There's really no difference here except the payment is being administered by a third party.
The key is to make sure that you understand the details of your particular case and what assets you may have to pay to keep. Then be prepared for it by having family loans lined up, budgeting for the trustee payments or considering a Chapter 13 so you can pay the assets out over 3 to 5 years instead of 6 to 8 months.