Filing for chapter 7 bankruptcy is the more extreme type of bankruptcy, the kind of thing most people picture if they haven’t looked into bankruptcy law yet and are imagining a scenario where your assets are all seized but your debts are effectively canceled. There is another common form of bankruptcy called chapter 13 or reorganization bankruptcy, where you can keep all your assets, but you need to have an income for this, because you will need to make some monthly repayments toward at least a portion of what you originally owed. Chapter 7, therefore, can be the better or only solution if you have little or no incoming money, but it is going to mean you have to part with some of your stuff.
While chapter 7 tries to be as kind as possible, given it is a last resort solution to help people who have found themselves in very dire financial straits, it is necessary to take and sell assets you have that are of value and not deemed essential for you to live and work, so your debtors do get at least some of their money back. Every state has a list of items that are exempt from seizure in the event of chapter 7, however, so if an item is important to you in terms of your life (rather than just something you like), you will probably be able to keep it.
Examples of Items Often Exempt From Being Seized
The idea of the list of exempt items is that you won’t lose things you really do need, or things you are entitled to. Financial assets you may be able to keep include compensation you were awarded after a successful litigation, some or all of your pension, and any social security benefits you are entitled to. Physical items are assessed up to a certain value, so you may keep your car unless it is a very valuable car which you could replace with something cheaper, and you can also keep clothes, furniture and appliances up to a certain reasonable value (this will vary depending on location). You can sometimes also keep jewelry up to a certain value, so you may not have to give up things like your wedding ring.
Another thing you will be allowed to keep are things you need for your profession. If you are out of work but have a general profession you would be looking for a new role in, this also counts.
Items That Are Usually Non Exempt
You are likely to have to give up stocks and shares, and anything deemed as a luxury such as a second car, a vacation property and things like musical instruments (unless you work as a musician and these come under professional equipment). You will also have to give up things of value like any collections of memorabilia, coins or other things, ornamental items of value, art work, family heirlooms, and clothes and furnishings above a reasonable valuable that could be sold on (for example if you have a collection of designer bags).
For a clear idea of exactly what is exempt or non exempt where you live, talk to a chapter 7 attorney.
Monica Smith, the author of this article, is an intern at Goldbach Law Group, leading chapter 13 bankruptcy attorneys in Whittier. She wishes to obtain a certification in bankruptcy law and start her own practice.