There are two types of bankruptcy Chapter 7 and Chapter 13. Chapter 7, which is referred to as a liquidation will be discussed here, where Chapter 13, known as repayment will be discussed later on. Chapter 7, as previously stated is known as a liquidation of assets. The effect of filing for bankruptcy under Chapter 7 is that the Trustee will dispose of all non-exempt property and divide those assets among the creditors. In my experience, most people don't have much in the way of non-exempt assets.
The core of the Chapter 7 is the concept of non-exempt assets. Most people who come into my office have no idea as to what they can and cannot keep under the bankruptcy code (these are for federal exemptions under section 522; there is another list for the Commonwealth of Pennsylvania that will be discussed at a later time). The short list follows:
1. $21625 in real property - This is the amount that you can protect in the equity of your home.
2. $3450 in a motor vehicle - This is the value of the vehicle that is not covered by a loan.
3. $11525 in household furnishings - This is value of the furniture and accessories in your home.
4. $11975 in wild card exemption - This exemption can be used against any other thing that does not fit within the other exemptions or if additional coverage is needed. For example if someone owned a truck free and clear worth $7000.00. Then to fully protect the truck would require more than the allowed $3450.00. The wild card exemption can be used to exempt the remainder.
5. $1450 in jewelry - This is used to protect wedding rings and other jewelry.
6. $2175 in tools of the trade -- to the extent that tools are needed to conduct your business this exemption allows you to protect your means of earning a living.
The purpose of the exemptions is to prevent people from being destitute after the bankruptcy is completed. People will poke fun at Congress and sometimes it is deserved. However, when the Bankruptcy code was envisioned it was not envisioned as a means to throw people out on the streets. The code is intended to create a fair balance between the debtor not being left destitute and the creditors receiving a fair share toward what is owed to them.
What we have is the exemption system. The numbers above are what Congress feels are fair amounts for debtors to keep and anything beyond that should be fairly divided among creditors. As a practical matter, it is rare for creditors to receive much in terms of debtor’s possessions. With the housing crash of 2008, most home values are below what most people want to consider their home is really worth. Additionally, most people simply don't have household furnishings worth more than $11,000. Most people live modestly and as such will be fully exempt. So if your question is "what will I be able to keep?" The answer is probably, everything. It can't really be known until an analysis of your case is done.
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