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If I file Chapter 7, will I lose all my personal property?

If you are a New York resident struggling with a large amount of personal debt, you may be considering bankruptcy as a possible solution. However, many people worry about filing for bankruptcy because they think it will mean losing everything in exchange for a fresh financial start.

Chapter 7 bankruptcy is commonly called liquidation bankruptcy because it does involve the use of your assets to repay debts. Once you file for bankruptcy, a trustee takes control over your property and assets in order to determine which property will be sold and its proceeds used to repay creditors. However, this does not mean that you will lose all of your personal property, because there are rules regarding which property will be liquidated to repay debts and which property you can retain.

One of the first determinations that a trustee makes is whether certain property is exempt or nonexempt. Nonexempt property must be surrendered for liquidation to be used in debt repayment. However, there are many types of property that are considered exempt. You are generally allowed to keep this property, despite filing for bankruptcy. Although the rules vary from state to state regarding what kinds of property are exempt; some general categories of exempt property include the following: motor vehicles, necessary clothing, household furnishings and goods, personal effects, certain jewelry, life insurance and pensions, tools needed for your trade or profession, public benefits and household appliances. However, there are certain limitations on the value of exempt property.

In addition to exempt property, you may own certain things that hold little value in liquidation terms or would be difficult to sell. These rules enable bankruptcy filers to get the needed financial benefits from bankruptcy without leaving them completely without assets.

Source: FindLaw.com, "Bankruptcy Exemptions: Chapter 7," accessed Aug. 15, 2014

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