For the individual, generally speaking, there are two different types of bankruptcy: Chapter 13 and Chapter 7. Each type of bankruptcy has its own advantages and disadvantages. One of the advantages of Chapter 7 over Chapter 13 is that the debtor will not be required to enter into a lengthy payment plan in which payments would be made to the court over the course of three to five years, and the debt is discharged relatively quickly. Chapter 7 could be, however, a disadvantage to those debtors who own large amounts of property.
Chapter 7 bankruptcy is also known as “liquidation” bankruptcy. When you file, all of your property becomes part of your “bankruptcy estate.” In a Chapter 7, the bankruptcy trustee assigned to the case has the power to liquidate the property in the bankruptcy estate in order to pay debts that are owed to creditors.
But because the purpose of bankruptcy is to give people a way out of unmanageable debt, rather than to make them destitute, there are many exemptions written into the law that allow the debtor to keep personal property that is essential for living. With appropriate planning, these exemptions allow many debtors to keep all or most of their personal property.
Debtors will be able to keep a generous amount of household goods and furnishings, clothing, some jewelry, vehicles up to a certain value, considerable equity in a home, tools needed for a trade or profession, retirement savings accounts, personal injury awards, and several other things.
A bankruptcy attorney can help you understand how your own property fits into these exemptions so that you will have a complete picture of what you can and cannot keep.
It is important to remember that the goal of bankruptcy is to get you back up on your feet. The law recognizes this fact and makes significant provisions to allow you to retain all of the property that you need to make a fresh financial start.