You know that bankruptcy offers a way to financial freedom, but you do not know what you may have to sacrifice to enjoy that freedom. What could you lose to creditors in bankruptcy?
Bankrate explains which assets remain on the table during bankruptcy. Learn how to prepare for life post-bankruptcy.
Bankruptcy estate
Assets often funneled into a “bankruptcy estate” that creditors may take from you include real estate in your possession when you file, divorce settlement proceeds, inheritance you have yet to receive and tax refunds that the IRS owes you. Creditors may also have a claim to your current income and income on its way to your bank account.
Did you gift, sell or shift ownership of real estate two or more years before filing bankruptcy without receiving “reasonably equivalent value” as recompense? If not, your creditors may claim such real estate as their own. Creditors may also take debt repayments totaling more than $600 that you paid toward other creditors, friends or family members if you repaid the money within 90 days of declaring bankruptcy.
Exempt assets
What assets do you not have to worry about losing during bankruptcy? Necessities such as furniture, your home, retirement accounts and equipment you need to work remain out of creditors’ reach. Limits exist on exempt property, and you must decide whether to apply for federal exemptions or state exemptions. Different chapters of bankruptcy offer different exemptions. For instance, Chapter 13 bankruptcy removes all property from creditors’ reach.
Explore Chapter 7 and Chapter 13 bankruptcy to understand how to improve your financial health and retain as many possessions as possible. Educating yourself on the matter may help bring a sense of calm.