There’s a common myth that filing for consumer bankruptcy costs you everything you own. That bankruptcy means creditors seize or force you to sell all your possessions until you walk away debt-free, but with nothing more than the clothes on your back. This prospect scares a lot of Escondido residents off from considering Chapter 7 or Chapter 13 bankruptcy even though they are struggling with debts they cannot pay on their own.
Fortunately, as we said, this is a myth. Filing for bankruptcy does not necessarily mean you must give up your home, car or personal possessions. Bankruptcy’s purpose is to help people with overwhelming debt make a fresh start, not impoverish them.
Keeping your home and other necessities
Chapter 7 bankruptcy is commonly known as “liquidation bankruptcy” because it reduces or eliminates many debts in exchange for the debtor liquidating many of their assets to partially pay them off. However, many assets are exempt from liquidation. Under California rules, you can claim exemption on your homestead (your primary residence), your car, and other items like:
- Household furnishings
- Jewelry, artwork and family heirlooms up to a certain cash value
- Health aids
- Bank deposits up to the amount necessary for support
- 75 percent of wages paid within 30 days of filing for bankruptcy
- Retirement accounts such as 401(k)s, IRAs and Roth IRAs
In Chapter 13 bankruptcy, nothing you own is liquidated, so you keep all your possessions. However, you may have to pay the value of the equity you own in your nonexempt property in your repayment plan.
The full benefit of bankruptcy
Getting the maximum benefit out of bankruptcy for the minimum cost and disruption to your day-to-day life and long-term plans is possible. The help of an experienced bankruptcy attorney can be a big help in this regard.