What Kind of Assets Can You Keep after Liquidation?
Filing for bankruptcy is a big decision and people frequently have concerns about how it will affect their assets and credit, especially in the case of Chapter 7 liquidation bankruptcy. Many people believe that when they file for Chapter 7, they must give up everything they own in order to receive a discharge. But that is not the case. The Bankruptcy Code actually provides for numerous types of property that are exempt from liquidation. Bankruptcy petitioners are frequently surprised at how much they are allowed to keep.
Section 522 of the Bankruptcy Code identifies the property that is exempt from liquidation in bankruptcy, such as:
- A limited interest in the debtor’s residence
- A limited interest in a motor vehicle
- Household items up to a limited value
- A limited amount of jewelry
- Professional books and tools up to a certain value
- Certain life insurance contracts
- Professionally prescribed health aids
- Most government benefits, including disability and unemployment benefits
- Reasonable alimony and support payments
Many retirement assets such as Individual Retirement Accounts (IRAs) and tax-deferred investments like 401(k) plans are also exempt.
Understanding these exemptions and using them to your advantage is an integral part of the bankruptcy process. These exemptions are an important consideration not only for deciding whether to file but also for deciding which type of bankruptcy is best for your situation.
For those concerned about losing their home during bankruptcy, it is especially important to fully understand how the federal and state homestead exemptions can protect your home from liquidation and, if not, what other options you have for getting out of debt while keeping your residence.