Bankruptcy exists to protect people and businesses from major financial hardship. If an individual loses their job, has a medical emergency or otherwise experiences significant economic hardship, they can use bankruptcy to protect themselves. A bankruptcy filing can lead to an automatic stay that delays collection efforts. People can prevent creditor lawsuits or vehicle repossession with bankruptcy filings. A successful bankruptcy filing can result in a discharge of unsecured eligible debts.
Overall, the bankruptcy process can be quite beneficial for those struggling with insurmountable financial challenges. However, many people who might benefit from bankruptcy choose not to file. They worry about the potential risks and challenges of bankruptcy, such as the possibility of losing valuable property. Is it inevitable that those who file for bankruptcy have to give up or liquidate their resources as part of the process?
Bankruptcy doesn’t always require liquidation
There are various different types of bankruptcy available. Most individuals pursuing a personal bankruptcy filing choose between Chapter 13 and Chapter 7 bankruptcy.
Chapter 13 bankruptcy cases involved structured repayment plans. Those who successfully complete a repayment plan as part of a Chapter 13 bankruptcy don’t have to liquidate their assets at all. Asset liquidation is typically only part of a Chapter 7 bankruptcy.
Even Chapter 7 filers can exempt their property
The law about personal bankruptcy allows people to exempt some of their property from liquidation. For example, individuals can usually protect a substantial amount of home equity. Whether they file separately or with a spouse and whether they have filed the appropriate paperwork to designate their home as a homestead can influence exactly how much equity they protect.
They can also protect up to $15,000 worth of home furnishings, retirement savings and a host of other valuable resources from liquidation. Typically, the process of selecting a type of personal bankruptcy includes a review of resources. Those with more assets may need to look at exemptions carefully.
Evaluating what property might be at risk in a bankruptcy filing can help people determine if Chapter 7 bankruptcy is the right option for them. Asset liquidation is occasionally necessary, but the majority of people seeking relief through bankruptcy don’t have to give up their property to obtain a discharge of their eligible debts.