Bankruptcy is the lifeline that many people rely on to pull them out under from crushing financial debt. Without this option, many people would lose everything while achieving nothing. While bankruptcy clears the slate for people and allows them to start fresh, it does come at a cost.
The cost is worth the benefit of bankruptcy. Studies have shown that only 8% of people who have filed for bankruptcy would later file for it a second time. The success that comes after bankruptcy makes the price of earning it a small fee in comparison.
What Chapter 7 bankruptcy costs
In chapter 7 bankruptcy, an applicant can erase nearly all of their debt. To eliminate this debt, the applicant needs to sell off all of its non-essential assets. The government then eliminates any remaining debt after the sale of assets pays off what it can.
The assets that an applicant cannot keep are known as “non-exemptions.” Non-exemptions are possessions and assets that an applicant does not need to survive after bankruptcy. Examples of these assets include:
- Non-primary real estate: if an applicant owns a second home, cabin, or beach house, they will need to sell the real estate. The applicant will be able to keep their primary residence in most cases.
- Investments: assets like stocks are non-essential to living. An applicant will need to sell any stoke and pay it towards their debt.
- New cars: while the government deems cars an essential asset, brand-new ones are not. An applicant will need to sell any non-primary vehicles, and possibly a primary vehicle if it is too new or valuable. A portion of the primary vehicle’s sale can go towards a replacement vehicle.
- Collections: any collection like rare coins, trading cards, and stamps are non-essential that the applicant will need to sell.
- Valuables: the applicant cannot keep other non-essential items such as fine china, expensive clothing, jewelry, or precious metals. Regardless of any sentimental value, the applicant should not plan on keeping these items.
Despite all of the non-essential categories, a bankruptcy applicant will be able to keep necessary possessions like their home, casual and work clothing, and their primary vehicle.
A small price for peace of mind
Massive financial debt can bury someone with constant interest and decades of payment. For the cost of giving up non-essential items, a person can find freedom from crippling debt.