What Will You Lose During A Bankruptcy?
Posted on: 16 March 2020
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One of the biggest concerns you may have when meeting with a bankruptcy attorney is whether you're going to lose everything. Barring some very unusual circumstances, that's extremely unlikely to happen. Let's look at what you might have to give up during bankruptcy and why that may be the case.
Understanding the Two Kinds of Bankruptcies
Before this question can really be addressed, it's important to look at the two types of bankruptcies. First, there is a repayment plan with reduced debts, usually Chapter 13 for individuals and Chapter 11 for businesses. In this scenario, you may be able to keep everything you currently own. Your bankruptcy lawyer will propose a plan. Most plans run three to five years, and then the court will discharge any remaining debts as long as the plan was honored.
The second type of plan is a liquidation of assets, commonly referred to as Chapter 7. When people tell bankruptcy attorney services providers that they're afraid of being wiped out, this is usually the kind of filing they're talking about. It's typically much less drastic than that, but the court will order you to sell non-essential items to pay off as much of your debts as possible.
What Do You Pay to Creditors?
If you've been accepted for a Chapter 13 or 11 filing, you most likely won't be asked to sell any assets. It's certainly an option to sell some less-needed items to get cash and satisfy the payment plan, but it's rarely court-ordered. The court will, however, expect you to spend as much of your disposable income as possible to pay the debt down.
Folks filing for Chapter 7 won't be asked to pay their creditors anything out of their future earnings. However, the court may transfer some cash to creditors if there's a fair amount of money available in your accounts.
What Gets Sold?
In the case of restructuring, little to nothing will be sold. Chapter 7, though, can be quite different. The court will appoint an officer whose job will be to recover as much of the debt you owe to your creditors as possible.
Note that there is a reasonableness standard applied to liquidating assets. For example, if you need to keep a practical vehicle to get to and from your job, you'll be allowed to keep one. Many other things are exempt, too, such as injury settlements, certain types of retirement plans, and reasonable amounts of clothing, household items, and furniture.