Chapter 7 Bankruptcy & Asset Protection: What You Need to Know

Chapter 7 bankruptcy helps you start over financially by paying off the creditors that you can and discharging your debts to the ones that you cannot. Before you file for Chapter 7 bankruptcy, it is imperative that you understand the risks it poses to your assets.

Asset Liquidation

The bankruptcy court will expect you to liquidate as many of your assets as possible and to use the money to repay your debts. The bankruptcy trustee in your case will oversee the liquidation process to ensure that you obtain fair market value for your assets and don’t sell them to a loved one for less than they are actually worth.

Exempt Assets

You can claim either state or federal exemptions on your assets during a Chapter 7 bankruptcy. In some cases, your exemption level for a certain item is greater than the item’s value and you can keep the asset. Some states offer “wild card” exemptions that can be applied to any asset during your Chapter 7 bankruptcy.

Hiding Assets

You cannot attempt to hide assets from the bankruptcy court prior to filing for bankruptcy. Doing so is the most common form of bankruptcy fraud and is punishable (in May 2010) by up to $250,000 in fines or up to five years in prison. Even if you sell your assets prior to filing for bankruptcy, you must sell the assets one full year before filing to prevent the value of the items from being included in your bankruptcy case.