Does Chapter 7 Require Selling All Your Assets?
One of the biggest fears people have about filing bankruptcy is the notion that they will lose everything when they do. While you should expect to have some property sold to repay debt, you do get to keep certain items. The way you hold on to property is through bankruptcy exemptions.
You and your lawyer will determine what you can keep by taking an inventory of everything you own and then crosschecking that list against Virginia’s list of bankruptcy exemptions. If an item is worth an amount equal to or less than the exemption amount that applies to the item, you get to keep the item in Chapter 7; if you’re filing Chapter 13, you don’t need to pay extra to keep it.
An example may help illustrate how exemptions work. Imagine you own a car that is worth $4,000 and it isn’t subject to any liens. In Virginia, we have a motor vehicle exemption of $6,000. Here is what would happen:
- In Chapter 7 bankruptcy — You would get to keep your car because the full value of it ($4,000) is less than the $6,000 exemption amount. Now, if your car was worth $20,000, then the bankruptcy trustee would likely take your car, sell it, pay you the exemption amount of $6,000, and use the rest of the money to pay back your creditors.
- In Chapter 13 bankruptcy — If the car is worth $4,000, you keep it and don’t have to pay anything extra. However, if the car is worth $20,000, you’ll have to pay your creditors $14,000 through your Chapter 13 plan (the value of the car minus the $6,000 exemption).
Virginia allows bankruptcy filers to claim dozens of different exemptions. Some of the more common exemptions are:
- Homestead — You can protect up to $5,000 of the equity in your home ($10,000 if married, over 65, or a disabled veteran). You can exempt an additional $500 for every dependent who lives with you at the property.
- Vehicle — As mentioned, you can exempt up to $6,000 worth of automobiles.
- Personal property — You can exempt up to $1,000 in clothing; $5,000 in household items; $3,000 of firearms; $5,000 of family heirlooms; a burial plot; pets and animals not raised for profit; and wedding rings.
- Retirement accounts — All money in pretax retirement accounts (401(k), 403(b), defined benefit pensions, etc.) is exempt.
- Wages — You can exempt either 40 times the federal minimum hourly wage or 75 percent of disposable weekly earnings. The bankruptcy court has discretion to approve more.
As you can see, you don’t have to lose everything when filing bankruptcy. At Miller Law Group, P.C., in Charlottesville, we are here to help you retain as much property as possible. Call 434-218-3987 or contact us online to schedule a free appointment.