Property Assessment During Bankruptcy
The two things you will consider in trying to avoid bankruptcy are whether you can cut your expenses and whether you can sell any assets to pay off some of your debts. The best way to start this process is by completing a property assessment.
To put it simply, property is something you own (such as money, a house, a car, or furniture) and a debt is money you owe. Property may also be referred to as an asset. There are several different types of property and debts involved in a bankruptcy.
Property is divided into exempt and nonexempt categories. Remember, the purpose of bankruptcy is to help you start over financially. It would not be helpful to leave you without any property, so the bankruptcy laws allow you to keep a certain amount of your property. The types and amounts of property you are allowed to keep are exempt property. The type and amount of property that is exempt is a matter of state law (and alternative federal law, in some states).
Although the Bankruptcy Code is a federal law, the question of exempt property is generally determined by state laws. Most states exempt the following types of property, at least up to a certain value or amount:
- motor vehicles
- clothing and personal effects
- household furnishings
- tools used in your trade or profession
- equity in a home
- life insurance
- public employee pensions
- Social Security, welfare, unemployment, workers' compensation, or other public benefits accumulated in a bank account.
Typical examples of nonexempt property are:
- a second car
- a boat or recreational vehicle
- a vacation home
- cash, bank accounts, certificates of deposit
- other investments, such as stocks, bonds, or coin collections
Note: Even if the property is exempt, you may still lose it if it is tied to a secured debt. For example, your home is exempt property under your state's laws. If you borrowed money from a bank to buy the house, and the bank holds a mortgage on the house, the bank can still foreclose and take your house if you do not pay.