One of the biggest concerns people have when they consider filing bankruptcy is what may happen to their property. A pervasive bankruptcy myth is that the bank will come collect every single possession, and the debtor will be left with nothing to their name. Fortunately, this is not the case, but what you’re able to keep depends largely on the type of bankruptcy you file and the monetary value of your assets. Here is a brief overview of what may happen to your property when you file Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 is often called “liquidation bankruptcy” because the trustee uses your assets to pay your creditors. Certain exemptions, however, may protect some of your property. Exempt property is what the trustee cannot use to repay your debt.
In Washington D.C., you will be able to choose between federal exemptions and Washington D.C. exemptions.
Washington D.C. exemptions include:
- Your home (no matter how much equity you have)
- Up to $8,625 in personal property items (not exceeding $425 per item)
- Your vehicle (unless it is worth more than $2,575)
- 75% of earned but unpaid wages
- Pensions, profit-sharing plans, stock bonuses, and ERISA retirement plans
Federal exemptions include:
- Up to $23,675 of equity in your principal residence
- Up to $12,625 in personal property items
- Your vehicle (unless it is worth more than $3,775)
- Any pension/retirement funds, including IRAs and Roth IRAs of up to $1.28 million
If you are filing bankruptcy in Maryland, however, you will not have the option of claiming federal exemptions, and you will not be able to claim a homestead exemption.
Under Maryland bankruptcy law, you may be able to claim the following exemptions:
- Up to $5,000 in clothing, books, tools, instruments, or appliances necessary for your trade or profession
- Up to $1,000 in household furnishings, goods, appliances, clothing, pets, and other personal items
- Up to $6,000 in cash or property of any kind and $5,000 in aggregate interest in your real or personal property
- Insurance, compensation, benefits, judgments, and other forms of relief after an illness, accident, injury, or death
- Health aids for you or your dependent (professionally prescribed)
- Income/cash from certain retirement plans
If the exemptions under applicable bankruptcy law protect the assets you want to keep, Chapter 7 could be your best option.
If you want or need to keep property that is not covered by Maryland exemptions or Washington D.C./federal exemptions, Chapter 13 may be a better alternative. Chapter 13 allows you to create a 3-5-year repayment plan without liquidating any of your assets.
Even if your mortgage lender has initiated foreclosure, Chapter 13 may allow you to keep your home. You may also be able to extend loan maturity and lower either the principal or the interest rate. Your repayment plan, however, will need approval from creditors, and you run the risk of losing your assets if you fail to make payments in the 3-5-year period.
Get in Touch with Our Firm for Additional Support
At Capital Justice Attorneys, LLP, we deliver fully personalized legal guidance for every client. While each case is unique, many of our clients have been able to keep what’s most important to them. Our goal is to help individuals and families file bankruptcy in a way that builds strong financial foundations for a better future.