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Understanding bankruptcy exemptions

On Behalf of | Mar 22, 2022 | Bankruptcy Exemptions

Understanding bankruptcy exemptions

Californians faced with bankruptcy often have many misconceptions about this legal process. Many also mistakenly believe that they will lose most if not all of their possessions when they file for bankruptcy. However, a provision called “keep and pay” may allow you to keep certain possessions as long as you continue to pay some of your debt.

What is keep and pay?

Keep and pay is a category of bankruptcy exemptions where individuals filing for bankruptcy that allows them to keep significant assets like a house or a vehicle as long as they continue to pay their debt according to the provisions of the bankruptcy filing. All other assets not included in the keep and pay provision can be liquidated to pay bankruptcy debts. In some cases, you may have to file a statement in court that you plan to keep certain assets under your bankruptcy judgment. Under Chapter 7 bankruptcy, each filer typically must state what they intend to do with the assets in question.

In California, anyone considering seek and pay will need to evaluate two sets of rules, one for state law and the other a federal list of rules. You’ll need to select one set of rules and follow them throughout bankruptcy filings.

What is best for your situation?

When filing Chapter 7 bankruptcy, it’s a good idea to also work with a financial advisor to determine what assets you can keep, in a practical sense, through keep and pay. Selecting what you can pay will make this process easier.

When going through the bankruptcy process, carefully evaluate all assets if you intend to use bankruptcy exemptions. Misusing exemptions can harm you in the long run and result in an even lower credit score and keep you in extreme debt.