5. Will I Lose my Property if I File Bankruptcy?

Usually my clients do not lose any property when they file bankruptcy.

First of all, the only type of bankruptcy in which the debtor is at risk of losing property is a chapter 7 bankruptcy called a liquidation bankruptcy. In chapter 13 bankruptcy, the trustee does not take any of the debtor’s property, he takes payments from the debtors instead.

In chapter 7, the chapter 7 trustee will take the debtors property only if the value of the debtors property is worth more than standard exemption limits.

Most debtors use the California standard set of exemptions found in Code of Civil Procedure sec. 703. Under that set of exemptions a debtor keeps all his clothes, households goods and furnishings automatically, up to a value of $500 per item. The debtor also keeps all of his retirement accounts and a car up to a value of $3,500, and jewelry up to a value of $1,350.

In addition to these exemptions the debtor can keep any kind of additional property, such as additional value in a car, other vehicles(s), money in the bank, or any other kind of property up to a value of $23,500.

Because of these generous exemptions, most people who file for bankruptcy find that all of their property is exempt.

However if a person has property significantly above these limits than he or she may wish to consider a chapter 13 bankruptcy instead, to avoid having to surrender any property to the chapter trustee.

Another common question people ask is if they will lose their house if they file bankruptcy. Most people who file bankruptcy these days have no equity in their homes. They owe more on the house than the house is worth. In this case the chapter 7 trustee is will definitely not take the debtor’s house because he would be able to sell the house for more than the amount that he would have to pay to the bank to clear the mortgage. So if your house is under-water your house is safe in bankruptcy (as long as you keep making your mortgage payments to the bank).

People who do have equity in their house can still file bankruptcy and exempt up to $75,000 in equity in their home if they are single or $100,000 if they are married. If the debtor is a senior or disabled, he can exempt up to $175,000 in equity in the house under the Code of Civil Procedures sec 704 set of exemptions. Unfortunately when a debtor uses this set of exemptions to exempt his house he cannot use the $23,500 wildcard exemption in sec 703.

Another caveat, when a couple is married, they have to share their exemptions. They do not get double up their exemptions, but have to count all of their property together and only get to exempt the amount of property that one person could exempt. I know it’s unfair to married people, but that’s the law.

Note, the amount of exemptions change every few years, so if you have questions about whether your property would be exempt if you filed for bankruptcy, call Attorney Evan Livingstone at (707) 206-6570 or email him at evanmlivingstone@gmail.com for a free consultation.

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