Is Keeping All Your Property in Chapter 13 Bankruptcy a Wise Decision?

  • Bankruptcy

Is Keeping All Your Property in Chapter 13 Bankruptcy a Wise Decision?

Filing for bankruptcy is a decision that people are reluctant to take because many times it involves letting go of your property. According to exemptions provided by state and federal government, lawyers of Dallas based bankruptcy law firm Recovery Law Group, explain that you can keep only the amount of property which is exempt. Any non-exempt property is sold to pay off your unsecured creditors in a Chapter 7 bankruptcy case. Contrary to this, Chapter 13 bankruptcy allows you to keep the non-exempt property if you pay your unsecured nonpriority creditors an amount equal to the non-exempt property along with the monthly payments as per repayment plan.

However, keeping your non-exempt property might be costlier than you think. In case all property you own is exempt, you are a lucky person; as, for all non-exempt property you wish to keep, you need to pay for it. To know more about bankruptcy exemptions, you can call 888-297-6023 and talk with bankruptcy lawyers. Many states allow debtors to choose from federal and state bankruptcy exemptions. You can keep the exempt property no matter which bankruptcy chapter you file under, however, the fate of non-exempt property depends on the chapter of bankruptcy you have filed. In the case of Chapter 7, your non-exempt property is liquidated, and the proceeds are used to pay your unsecured debts. In the case of Chapter 13 bankruptcy, you pay your unsecured creditors through your repayment plan an amount equivalent to any non-exempt property you wish to keep.

Why you should avoid keeping all your non-exempt property?

Chapter 13 bankruptcy involves a repayment plan wherein the debtor is expected to come up with a plan to pay the unsecured creditors (medical bills, credit card bills, etc.) a part of the debts over a course of 3 to 5-years time. This is done using the disposable income of the debtor. Disposable income is calculated by considering the monthly income and expenditure of the debtor and the amount expected to be paid for secured and priority debts like certain taxes. The non-exempt property also plays an important role in this. If an individual debtor wishes to keep any or all their non-exempt property, they need to pay the unsecured creditors the higher amount of either their disposable income or a value equal to the non-exempt assets. In case you wish to keep all your non-exempt assets and do not have enough disposable income, your repayment plan might get rejected by the bankruptcy court.

Since mortgage arrears, car loans and priority debts need to be paid off in full, keeping many non-exempt properties might increase your debt problems. In case you wish to keep your house or car, you cannot afford to miss any payments on those dues. Missed payments can lead the creditors to ask the court for a lift on automatic stay and thus they can resume foreclosure or repossession actions. Chapter 13 also allows you to catch up on secured debt payments. You can use the 3 to 5-years repayment plan to pay prearrange as well as regular monthly payments on secured and priority debts. Keeping non-exempt property which you do not need will add up to your expenses, therefore it is important to weigh your options clearly before taking any decision.