Property and Bankruptcy

Someone filing bankruptcy may feel a loss, but not making it financially does not mean losing in all of life. Debtors normally keep most of their belongings after bankruptcy. Whether a debtor files under Chapter 7, 13, or another Bankruptcy Code chapter depends on the property a debtor has and wants to keep.

When filing bankruptcy, a debtor estimates the value of each property like a car or home to see if there is equity in the property, and if a trustee can take some of the equity. To get the fair market value of a house, ask a realtor. To get a value on a car, look at the Kelly Blue Book.

If a person files Chapter 7, s/he can elect to keep property like a home provided s/he does not exceed the exemption limit on equity in the property. A person who underestimates the value of property may run into exemption limit issues and have to revise a petition.

If a person files Chapter 13, s/he may keep property even when the equity exceeds the exemption limit if a court confirms a repayment plan. When a person is behind on loan payments or wants to remove a second home mortgage, Chapter 13 may be the solution to allow missed loan payments to be paid as part of a repayment plan, therefore avoiding losing the property.

Exempt property is what the trustee cannot take away. If a trustee suspects a debtor owns non-exempt property, the trustee may question the estimated value to find out whether a trustee can take the property.

Most people who file bankruptcy can keep depreciating property like cars. Under Chapter 7, a debtor keeps a vehicle if s/he has no equity or equity below the exemption amount. If a person is behind in a car loan, a lender may repossess the car before a bankruptcy filing. After a bankruptcy filing, the lender’s actions to repossess are stopped by the automatic stay, giving time to the debtor to decide whether to give up the car or reaffirm the car loan. To reaffirm a loan, the debtor has to sign a reaffirmation agreement and get court approval. If a person leases a car, there is no equity, and the person may keep the leased car as long as s/he makes the payments.
In Chapter 13 bankruptcy, a debtor’s vehicle payments become part of the repayment plan.

During a 341 hearing, trustee may ask if a debtor expects a tax refund. If a debtor anticipates a tax refund in the year s/he files bankruptcy s/he has to disclose let the trustee know. The debtor can keep the refund if it can be exempted, but a debtor should engage a New York bankruptcy attorney to do a careful inventory of assets to protect a tax refund.

When deciding whether to file bankruptcy, look to an experienced New York bankruptcy attorney for advice on what happens to property in a bankruptcy case.