Will I have to give up my personal possessions if I file for bankruptcy?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 15, 2021

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Whether or not you have to give up your personal possessions when you file for bankruptcy depends on what type of bankruptcy you file. Even if you are required to relinquish your possessions, many of your belongings are exempt and will not be considered bankruptcy assets.

Chapter 7 and Chapter 13 are the two main types of consumer bankruptcies. A Chapter 13 bankruptcy is best characterized as a “restructuring” bankruptcy because your debts are restructured through a payment plan spread out over five years.  Chapter 13 does not usually involve you “losing your possessions.”  Chapter 7, however, does sometimes involve the loss of possessions.  Possessions which are not exempt can be seized and sold by a bankruptcy trustee to satisfy any of your outstanding debts.  The Bankruptcy Code determines which assets will be turned over to the trustee.

The federal Bankruptcy Code provides that you can protect some property from the claims of creditors either because it is exempt under federal bankruptcy law or because it is exempt under the laws of your home state. You get to keep the exempt property. In Chapter 7, the trustee will take any property that is not exempt and sell it to pay off creditors. (The “exempt” and “nonexempt” classification has no effect under a Chapter 13 bankruptcy, since a repayment plan is used to pay your debt obligations.)

Many states have taken advantage of a provision in the bankruptcy law that permits each state to adopt its own exemption law in place of the federal exemptions (click here for a list of state bankruptcy exemptions). In other jurisdictions, you have the option of choosing between federal exemptions or exemptions available under state law. Though the types of property that are exempt may be similar under both federal and state law, the value of the asset that can be excluded differs widely. If you are married filing jointly, both spouses must make the same exemption election.

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