What property might I lose in Chapter 7 bankruptcy?

In a consumer or business liquidation bankruptcy (Chapter 7), a debtor will be required to hand over certain property items, which will then be distributed by the bankruptcy trustee to the appropriate creditors. What property a debtor may lose in a Chapter 7 bankruptcy case depends on the state’s laws and the types of exemptions, like wild card exemptions, available in the jurisdiction. Follow this link to learn about the specific property exemptions in your state.

Subject to these exceptions, debtors could lose the following items of property:

• a second residence;
• recreational vehicles;
• a second car;
• stamp, coin and other collections and heirlooms;
• stocks and bond certificates;
• cash on hand (unless it comes from unemployment insurance);
• deposits of money (e.g., bank accounts, CDs, escrow accounts, money market accounts);
• property they own but do not have in physical possession (e.g., security deposits);
• money they have a present right to receive at some future date (e.g., tax refunds, vacation pay, wages);
• part of a marital estate;
• any inheritance, marital property settlement, or life insurance payment (to the extent not exempt) that they receive within 180 days after filing.

Often, the home is of most concern to property owners in bankruptcy. The majority of Chapter 7 debtors will be able to keep their homes in bankruptcy; as long as they continue to pay on their mortgage, their lender cannot foreclose on them. If the goal is to temporarily delay foreclosure, Chapter 7 can help a debtor deal with creditors while staying in their home until the foreclosure takes place.

In some rare cases, unsecured creditors (such as from child support or credit card bills) will have to be paid with no exceptions, and if the debtor has a lot of equity in their home, it could be used to pay these creditors.

Depending on the exemption rules in your jurisdiction and your situation, you may be able to save much of your non-exempt property through the wild card exemption. Consult with an attorney in your state to see what options are available.

Case Studies: Property in Chapter 7 Bankruptcy

Case Study 1: Home Exemption

In a Chapter 7 bankruptcy case, a homeowner in State X has a property valued at $250,000 with a mortgage balance of $200,000. The state’s homestead exemption allows homeowners to exempt up to $250,000 of equity in their primary residence. Since the homeowner’s equity is below the exemption threshold, they can keep their home and continue making mortgage payments.

Case Study 2: Non-Exempt Personal Property

A debtor in State Y has a collection of valuable artwork worth $50,000. However, the state’s personal property exemption only allows a maximum exemption of $10,000 for personal belongings. In this case, the debtor may need to surrender the artwork to the bankruptcy trustee, who will sell it and distribute the proceeds to the creditors.

Case Study 3: Wild Card Exemption

In State Z, the wild card exemption allows debtors to exempt up to $5,000 of any property of their choice. A debtor in this state owns a boat valued at $8,000 and also has $3,000 worth of jewelry. By utilizing the wild card exemption, the debtor can exempt the boat and $2,000 worth of jewelry, but they may need to surrender $1,000 worth of jewelry to satisfy the non-exempt portion.