Myth: If I file bankruptcy, my assets will be taken by the court and used to pay my debts.
Fact: Many personal assets are exempt and cannot be taken away from you.
What is “exempt property?”
Exempt property is property that you are allowed to keep when filing bankruptcy, subject to any valid liens that may exist. When an asset is exempt, a bankruptcy trustee cannot take the property to pay your debts.
A debtor in Texas can choose either the Texas Bankruptcy Exemptions or the Federal Bankruptcy Exemptions. It is always best to check with a Board Certified bankruptcy attorney to find out which exemptions would protect more assets in your bankruptcy estate.
In a Chapter 13 debt repayment plan, a debtor typically keeps all property, whether it is exempt or not.
What is the bankruptcy estate?
When you file a bankruptcy petition, the court will create a bankruptcy petition. All property that you have an interest in on the date the bankruptcy is filed becomes property of the bankruptcy estate, including:
Land, vehicles, and other personal property
Intangible property, such as damage claims you may have against others (for example, your right to sue people—even if you have not already filed the lawsuit)
Accounts receivable (debts owed to you by others)
Your right to receive commissions
Virtually everything of any possible value that you own, hold or may be entitled to receive is property of the bankruptcy estate.
What isn't included in the bankruptcy estate?
In a Chapter 7 case, the bankruptcy estate is limited to property you own on the date the case was filed. Any property that you obtain after the case is filed does not become part of the bankruptcy estate, except in the following three cases:
You become entitled to receive any property from an inheritance within 180 days of your filing date
A property settlement agreement reached with a former spouse or contained in a divorce decree within 180 days of your filing date
You become the beneficiary of a life insurance policy or death benefit plan within 180 days of your filing date.
In these three cases, the property becomes part of the bankruptcy estate and can be taken and sold to satisfy the claims of creditors, unless it is exempt.
How do I claim exemptions?
One of the schedules you file in your Chapter 7 bankruptcy case is a schedule claiming certain property to be exempt from seizure. The bankruptcy trustee has thirty days following the conclusion of the meeting of creditors to file an objection to the exemptions that you claim.
If no objection is filed, then the property claimed as exempt is removed from the bankruptcy estate and once again belongs to you. Most people who file bankruptcy are able to claim all of their property exempt and by doing so are able to keep everything that they own.
Free Consultation: Contact Board Certified bankruptcy attorney Fred E. Walker in Austin, Texas, for a debt relief consultation. There is no cost or obligation.