One of the most common questions asked by individuals who are considering Chapter 7 bankruptcy as an option for eliminating debt is, “What property will I be able to keep?” The answer is not always a simple one. In California, there are two code sections that can be used to protect (exempt) property when a bankruptcy is filed. One of the code sections is more generous with the amount of protection for a home if there is equity in the home (which means the home is worth more than the loan amount). The other code section may be more advantageous for debtors who do not own a home, or who have no equity in their current residence.
It is important for debtors in California to determine whether the California codes apply to their case. If the debtor has lived in California for the last two years, the California codes will apply. If not, another state’s exemptions may apply. Once it is established that the California codes do apply to the debtor’s case, the debtor must choose which of the two code sections to use to protect property. The type of property that the debtor owns, and the value of that property will help determine which of the two code sections is more beneficial.
The two types of property that most debtors ask about are their house and their car. Generally, if there is no equity in a residence, it can be retained during and after a Chapter 7 bankruptcy case as long as the mortgage payments are current, or an arrangement has been reached with the lender outside the bankruptcy. If there is equity, however, that exceeds the protection amount that the California code provides, the bankruptcy trustee may try to sell the home. A bankruptcy trustee is assigned to each Chapter 7 case to liquidate the assets that are not protected. A car can also be retained if there is no equity, or if the amount of equity is covered by the exemption code. The difference with a car is that a debtor is often required to reaffirm the debt, which can have adverse consequences after the bankruptcy if payments are missed.
Many debtors are able to keep all of their property when filing Chapter 7 if they use the exemption codes correctly. An attorney can assist with evaluating exemptions available to the debtor.
For more information or a consultation, please call 661-210-5657, or email mjf4bk@ca.rr.com .