What Do You Lose When You File Bankruptcy?

Eviction and mortgage debt, foreclosure or difficulty to payback bank mortgage loan concept, bankruptcy man and family fighting to hold back their house with big legal hand evict it by law.

There is a lot of confusing information out there about what happens to your property once the Bankruptcy Court gets a hold of it. This may lead you to think you will lose everything when you file bankruptcy. The truth is much more reasonable. By working with an experienced bankruptcy attorney, most petitioners can protect the property that matters most to them.

How Much You Lose Depends on Type of Bankruptcy

How much you have to lose after filing for bankruptcy depends on which type of bankruptcy you choose. Chapter 7 and Chapter 13 work very differently. Which one is best for you depends on your income, and how much property you have that you want to protect against a forced sale.

Chapter 13

In most cases, if you file for bankruptcy using a Chapter 13 repayment plan you won’t lose any of your possessions or property. Chapter 13 is designed to help you pay your debts over a period of time. It looks forward at your income, not backward at your bank account.

However, if you lose your job, have added expenses, or otherwise can’t make your budget work, you still must pay your monthly payments to the bankruptcy trustee. Unless you are allowed to amend your repayment plan (due to a qualifying hardship), you may need to dip into your savings or sell some of your assets to make those payments on time. Otherwise, you could have your Chapter 13 bankruptcy dismissed without discharging the remaining debt.

Chapter 7

Even under Chapter 7, the vast majority of petitioners don’t lose anything when they file for bankruptcy. Yes, in a Chapter 7 bankruptcy, the trustee will liquidate your nonexempt assets to satisfy your creditors. This means you could lose your vacation home, your savings accounts, or luxury items like boats or jewelry collections. But we will plan strategically to minimize such losses, if there are any, including by utilizing the available exemptions to your best advantage. Even seemingly non-essential property can often be retained.

However, many families who are considering bankruptcy have few if any non-exempt assets. In Connecticut, each petitioner has the choice to use either the state or federal exemption statutes when filing their bankruptcy petition. These exemption statutes protect specific types of property to make a bankruptcy doesn’t leave you homeless or destitute. Your bankruptcy attorney can help you choose the right set of exemptions to protect your most important assets, and keep you from losing anything you can’t afford.

Do You Lose Your Car When You File Bankruptcy?

Many people are especially concerned that they will lose their car in a bankruptcy. You might depend on your car to get to work, or transport your kids for school or visitation with a former spouse. But for renters in particular, a car can be one of the most valuable possessions you own. Fortunately, both the state and federal bankruptcy exemption statutes include an allowance for your primary vehicle. The federal exemption covers one vehicle worth up to $4,000. However, starting in 2021, the Connecticut motor vehicle exemption allows married couples (who both file for bankruptcy) to protect two vehicles with a combined equity of up to $14,000.

Will You Lose Your House When You File Bankruptcy?

If you are a homeowner considering bankruptcy the idea that you might lose your home can keep you from going to the bankruptcy lawyer’s office. However, filing for bankruptcy, especially under Chapter 13, can sometimes help you save your home from foreclosure. Every bankruptcy filing triggers an automatic stay on all collections actions against you. That includes foreclosure on your home. A Chapter 13 repayment plan can give you 3 to 5 years to catch up on your mortgage payments. In addition, some home equity (HELOC) loans can be discharged in bankruptcy, making it easier for you to pay down the debt and keep your house.

If repayment isn’t an option, there are also homestead exemptions designed to protect your home. The same law that expanded Connecticut’s vehicle exemption now allows married homeowners to protect up to $500,000 in equity. That’s the net value of your home after the mortgage. That means most families will be able to keep their homes, and some may even come away from bankruptcy owing less than when they started.

Get Help Preventing Losses in Bankruptcy

There is always a chance that you will lose property when you file bankruptcy. However, by working with an experienced bankruptcy attorney and making the most of your choice of exemptions you can protect your home, your cars, and other important assets.

Now that Connecticut’s new laws are in effect, it is a good time to meet with a bankruptcy lawyer to review your financial situation and decide if bankruptcy is the right choice for you. In many years of bankruptcy practice, we have helped hundreds of Connecticut families protect their property and get a new start. Please contact us for a free consultation.