Can You Protect Assets During Bankruptcy?

17 December 2020 by Jonathan Phillips

A common worry for anyone speaking with a bankruptcy attorney is about whether they'll be able to hold onto certain assets. The answer is dependent on several factors, and here's what a bankruptcy lawyer will tell you about your chances.

Type of Bankruptcy

Courts only sell assets in one type of bankruptcy: Chapter 7 liquidation. If you're restructuring debts in Chapter 11, 12, or 13, the assets will stay in your possession as long as you stick to the court-approved repayment plan. Even if you end up in Chapter 7, it might be possible to liquidate some assets and then file a separate Chapter 13 petition to protect others by restructuring your payments.

However, you shouldn't assume that filing for restructuring means the judge will allow it. If the court believes you don't have the financial stability to make good on a restructured payment schedule, it may reject the filing and encourage you to file Chapter 7 instead. In that scenario, your assets might be exposed to sale.

Exemptions for Essential Assets

When a client and bankruptcy attorney send their paperwork to the court, they have the right to ask the court to exempt essential assets. For example, most people should be able to claim an exemption for a reasonable vehicle to get back and forth from work. However, the court-appointed trustee does have room to sell a less reasonable vehicle and give you part of the proceeds to purchase a more sensible one.

You'll also be able to claim exemptions for everyday items. Unless you have nice dishware, for example, you'll have something to serve dinner on. The same idea applies to clothing, furniture, computers, and so on. If it's part of a normal existence and not too high-end, there's a good chance the court will exempt it.

Wildcard Exemptions

Some states allow wildcard exemptions. The states' laws set thresholds for the value of what you can exempt, and you can claim anything as long as you don't exceed that amount. Theoretically, someone could hold onto a brick of gold in these states as long as it doesn't exceed the limit.

Unsellable Items

The court-appointed trustee is also able to exercise their judgment about what isn't worth selling or would be too hard to sell. In those instances, the assets stay with the petitioner. However, a bankruptcy lawyer can't guarantee that a particular asset will fall into this category.

To learn more, contact a bankruptcy lawyer.

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