Filing for bankruptcy is not something you should rush into, unless you are absolutely certain it will benefit your financial situation. While it can be quite helpful to some people, there are also times when it does not offer a lot of benefits to a person. One way you can determine whether it will be right for you is by understanding how exemptions work in Chapter 7 bankruptcies. All the property you own will be classified as exempt or nonexempt, and the way this will work can help you decide whether bankruptcy is right for you.
The Way Your Assets Are Classified Determines What You Get To Keep
If you think of bankruptcy as a process that will require you to surrender everything you own, you are under a false belief. There are things you may have to give up in order to file; however, you will not have to turn in everything you own. Instead, your assets and belongings will be placed into categories, which are:
- Exempt assets – If things you own are classified as exempt, it means they will not become part of the bankruptcy. You will be able to keep all belongings placed in the category of exempt assets.
- Nonexempt assets – Things that are classified as nonexempt are items the trustee can seize from you.
Finding out how your assets will be classified before you file for bankruptcy can help you determine if you should file. If you discover that most of your assets will be considered nonexempt, you might not want to file for bankruptcy, because it would mean losing most of the things you own. On the other hand, if you discover you will be able to keep most assets, filing might make sense.
How The Trustee Makes The Decision
When you file for bankruptcy, your attorney will help you understand the process; however, the trustee is actually responsible for making decisions on the case. One decision will involve classifying your assets. Trustees do this based on the goal of collecting money to repay debts. In other words, if a trustee is able to seize your assets and make money by selling them, he or she could use the money to pay debts that would have been discharged.
As the trustee makes these decisions, he or she will primarily be looking at equity in the items. For example, if you own your house and owe almost as much as it is worth, the trustee is likely to consider this an exempt asset. There would be no purpose in selling the house, because the trustee would not be able to raise a significant amount of money to use to pay your debts.
The trustee will also do this when examining your car and other assets. If you own an RV or boat and do not owe money on it, the trustee is likely to classify this item as a nonexempt asset. In this situation, the trustee would be able to sell the item and raise money to use to pay your creditors.
In addition, you will be allowed to keep things such as clothing, jewelry, and instruments. You might also be able to keep collections you have; however, you must report everything you own of value on your bankruptcy forms when you file.
Bankruptcy lawyers are highly skilled with handling bankruptcy cases, and this is why they can typically offer you a good idea about how your assets will be classified if you decide to file. If you would like to learn more about Chapter 7 bankruptcy, contact a bankruptcy lawyer in your area today to schedule an appointment or click here to find out more.