Will I lose my assets if I file for Chapter 7?
You may possibly lose some assets if you file for Chapter 7. In Florida, we have a very extensive homestead exemption, it's unlimited, so your home is protected. However, in exchange, they very much limited the personal property in vehicle exemptions. If you do own a home, your personal property exemption is limited to $1000 per person, and your vehicle exemption is also limited to $1000 per person. If you have valuable assets you may want consider filing a chapter 13 instead, where all of your assets are protected and you get the opportunity to repay some of the debt to your creditors.
Bankruptcy is a tradeoff. In exchange for the court reducing or eliminating your debt, you agree to release some of your assets to repay the creditors. Those assets are examined under Florida law to see what you are allowed to keep and what you must relinquish. The overall goal being that the trustee, or the court-appointed manager of your case, will try to recoup as many of your assets as possible and use those assets to pay the creditors. Here are the basics regarding assets in a Chapter 7 bankruptcy:
Florida has one of the most generous benefits in the country when it comes to the bankruptcy homestead exemption. The requirements are that the property is no more than a ½ acre inside a city or 160 acres outside of a city. And you need to have owned the property for 1,215 days or more. If you meet the requirements, then the value of your home is yours with no dollar restriction. This means the bankruptcy trustee cannot sell your home to get at the equity so to pay other creditors. However, there is a possible 10 yr lookback for recovery of any additional principal paydowns you may have made in the event of fraud committed against a creditor.
If you own a home and you cannot pay the mortgage, you may still lose the house in a Chapter 7 bankruptcy, but you will get the balance of the outstanding debt erased and in most circumstances you will be able to keep the equity in the home. For instance, if you owe $100,000 and the foreclosure sale was $150,000, you will be returned the $50,000 and the mortgage will be satisfied. Depending upon the timing, you may be required to purchase another home in your name within 180 days to maintain the protection of the homestead exemption. If you are current on your mortgage and intend to keep paying it, then the house will stay out of the bankruptcy and you can keep it.
Perhaps to balance the generous homestead exemption, personal property is limited to $1,000 of exemptions. So things like computers, musical instruments, fine clothing, jewelry and such might be taken by the trustee to pay the creditors – but you will always be given the option of paying to keep the items at their present used/pre-owned value which may be very low.
Some other personal property is exempt and not counted against the $1,000 such as education and health savings accounts and prescription health aids, plus pension benefits, qualified tax exempt retirement accounts, or public benefits like Workers Compensation or Social Security.
If you have $1,200 worth of personal property, will the trustee seize a $200 item for sale? Though theoretically able to do so, the trustee has to consider the cost to actually sell it. But if you have a valuable stash of comic books or fur coats in the closet and you cannot protect them under the $1,000 exemption, they may be taken to pay the creditors. Certain items are easier to sell than others. Sometimes a trustee will abandon personal property that might be able to be seized because it is not worth the time and effort. And remember you will always have the option to pay and retain the personal property usually in a payment plan lasting a few months.
This exemption is also $1,000. The exemption relates to the equity in your vehicle. So if you owe a $2,000 loan on a $3,000 vehicle, you can keep it if you are current on the payments and intend to continue paying it. But if you own the same vehicle free and clear, the trustee will likely sell the car and return your $1,000 exemption in cash.
If you do not elect to use the homestead exemption (because you are a renter, perhaps), you can use an additional $4,000 towards personal property exemption. So if you owned a vehicle free and clear worth $3,000, you could use your $1,000 automobile exemption and $2,000 of the wildcard exemption to keep the car, leaving you $2,000 in wildcard exemption to use for other items.
These are the basic exemptions that usually come into play in every case. There are a lot more types of exceptions that may or may not pertain to you. With so many factors to consider when filing bankruptcy, it is always a good idea to get some expert advice before making decisions.