Will I Lose Everything if I File for Bankruptcy?


A common misconception is that filing for bankruptcy means you will lose all of your personal property in exchange for wiping your debts clean. Unfortunately, this causes some people to drag their heels about filing a bankruptcy petition, leading them into deeper and deeper piles of debt.

While the fear of “losing everything” due to a bankruptcy is very common – it’s unfounded, regardless of whether you’re filing for Chapter 7 or Chapter 13. Bankruptcy laws have been created with the end goal of helping struggling debtors get back on their feet. Taking everything they own would be counter-intuitive to that goal, as it would leave them with no debt, but no assets either.

Filing for bankruptcy DOES NOT mean you will lose your home. Additionally, you will almost always be able to keep at least one vehicle, so that you can continue to work.

What Happens in a Bankruptcy Case?

If you file for Chapter 7, your case will be assigned a bankruptcy trustee. This person is not working for or against you; they are working for the Department of Justice. Their job is to ensure that your assets are liquidated properly and that your creditors are paid off fairly, all while following federal and state bankruptcy guidelines.

While your trustee is assigned to liquidate (sell) your assets (property), there are limitations in place for what can and cannot be sold in order to pay off your debts. These limits are set so that you will be left with a place to live, clothes to wear, and furniture to sit on. You will typically be allowed to keep all or most of your household items as well (dishes, toiletries, tools, artwork and other home decor) unless they are unusually valuable.

Some states have what is known as a “Homestead Exemption Policy.” This policy varies from state to state in how much home equity you are allowed to exempt (keep). New Jersey does not have a Homestead Exemption Policy, but debtors who file for bankruptcy in NJ are allowed to use the federal bankruptcy exemptions, which will protect some of your home equity.

Married couples in NJ may be allowed to double the federal exemption amount. Also, if you and your spouse own your home jointly, it may be completely exempt, as long as the outstanding debts you are seeking relief from are not joint debts. This will help married debtors if only one party has a lot of debt, and only if that person files for bankruptcy alone and not jointly with his/her spouse.

If you are filing for Chapter 13 bankruptcy, the ability to exempt your home equity will directly affect how much money you’ll be required to pay your creditors. Your trustee will not liquidate your assets in a Chapter 13, but will add up the value of your exempt vs nonexempt property. The value of any nonexempt property is what you will be required to pay to your creditors, so exemptions will lower your payment amount.

Regardless of whether you’re considering filing for Chapter 7 or Chapter 13 bankruptcy, the important thing to remember is that you will not lose everything. The goal of filing for bankruptcy is to help get you to a stable financial future.


 Photo credit: Money Images

3 Responses to Will I Lose Everything if I File for Bankruptcy?

  1. Pingback: Foreclosure or Bankruptcy: Which is the Better Option? | Veitengruber Law

  2. Pingback: Bankruptcy FAQ: Will I Lose Everything I Bought With Credit Cards? | Veitengruber Law

  3. Pingback: What is Bankruptcy Redemption? | Veitengruber Law

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