When you file for Chapter 7 bankruptcy in California or any other state, you may be forced to give up your home, car or other assets. However, it’s also possible that you can exempt certain assets from being seized or at least protect a significant portion of an item’s market value.
Examples of exempt property
In California, you can make use of a homestead exemption to retain equity in a principal residence. Let’s say you had a house worth $500,000 and a mortgage with a $300,000 balance. In such a scenario, you would have $200,000 in equity that the California bankruptcy code may allow you to keep. You may also be able to exempt equity in your car, cash in the bank or other items needed for personal or business reasons.
If items cannot be exempted
It’s possible that assets in your bankruptcy estate cannot be protected because their value exceeds the exemption amount. In such a scenario, the trustee in your case would have the option of seizing nonexempt property and liquidating them for the benefit of your creditors. However, there is no guarantee that this will happen as the trustee would also need to factor in the cost of seizing, listing and selling the item when determining if it’s worth taking.
The vast majority of Chapter 7 proceedings are classified as no-asset cases. This means you had nothing the trustee would want or was allowed to take when you filed your petition. Typically, those filing such a case either don’t own a home or car or have little equity. It’s also fairly common for Chapter 7 filers to have little money in a bank or brokerage account.
Filing for bankruptcy may be an ideal way to reduce or minimize the debt that you owe without losing everything you own. Typically, a Chapter 7 case lasts for four to six months, and creditors are barred from engaging in collection activities while your case is open.