When you file for bankruptcy, your assets can become a part of your ability to pay back a debt. Almost everything in your possession can be considered an asset that may be collected. There are specific rules regarding assets for each chapter of bankruptcy, and some can be exempt. Others may be undesirable if they are difficult to sell. Here’s a general guide to assets in your bankruptcy case.
Assets That Can Be Used
Assets that can be claimed by the court include any property that is sellable. After a sale of property and possessions, that money can be used to pay back some of the debt. This is applicable in Chapter 7 bankruptcy cases, and you should discuss what you may lose with a lawyer, like a Chapter 7 bankruptcy lawyer from the Law Offices of Ronald I. Chorches, before committing to this path. A different form of bankruptcy, Chapter 13, also exists where the court does not claim your literal assets, but you are still responsible for paying the amount that your assets are worth. This is a way to keep your property while still repaying creditors.
Types of Nonexempt Assets
Every state defines what counts as a nonexempt asset. However, they generally apply to assets that aren’t necessary to your financial stability. For example, second or third homes, items that aren’t needed for your business, extra investments, and valuable items like jewelry, artwork, and clothes may be taken. Anything that is considered extra can be collected for sale in order to pay back creditors.
Assets That Are Exempt
Exempt assets are things that cannot be claimed by the court under certain conditions and depending on value. It includes homesteads, vehicles, life insurance, health insurance, social security, personal injury compensation, retirement funds, and household items, among others. Laws about how nonexempt assets are handled varies from state to state. You should check your state laws to determine how they impact you and your estate.
Assets That Have Been Taken
The court will choose assets to claim depending on how easy they are to sell or if their value makes them worth the effort of selling. Once these assets have been sold, the money from the sale will go to creditors to reduce your debt.
It is possible to avoid bankruptcy by selling your assets on your own. This allows you to pay back creditors without taking a hit to your credit. You can also try negotiating with creditors to get your debt reduced or create a payment plan.