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

Chapter 7 bankruptcy allows you to discharge your debts along with your legal obligation to repay your debts. It may, however, result in your losing property you own.

Property Exemptions

Depending on the state you live in when you file Chapter 7 bankruptcy, you may claim either state or federal exemptions for your property. Only property up to a certain amount is exempt. If, for example, your state allows a $5000 exemption for a vehicle and your vehicle is worth only $4000, you may keep it. A car worth $10,000, however, would be seized and sold by the bankruptcy court.

Reaffirming Secured Debts

To prevent losing secured property, you may sign a reaffirmation agreement. A reaffirmation agreement states that you intend to continue making regular payments on the debt and do not want the debt included in the bankruptcy proceedings. You can use reaffirmation to keep property that you own but still owe money on.

The "Wild Card" Exemption

Many states offer a “wild card” exemption option. You can use the wild card exemption to protect property that would otherwise be seized by the bankruptcy trustee. If your wild card exemption is $5000 and your automobile exemption is $5000, yet the car is worth $10,000, you may combine the wild card exemption with the standard automobile exemption in order to maintain ownership of your vehicle.