What Assets Can I Keep if I File for Bankruptcy?
Filing for bankruptcy is often viewed as a last resort for individuals facing insurmountable debt. Many people, however, are unsure about what will happen to their assets if they choose to file. Will they lose everything, or is there a way to retain valuable possessions?
The answer to this question depends on several factors, such as the type of bankruptcy being filed, the nature of the assets, and the exemptions available under Arkansas law. At Watson Law Firm in Harrison, Arkansas, I work as a bankruptcy attorney who can help clients understand their options when it comes to filing.
When you work with me, I’ll explore the assets you may be able to keep when filing for bankruptcy in Arkansas. I’ll cover the two primary types of bankruptcy individuals might file, Chapter 7 and Chapter 13, and explain what each type of filing means for your personal property.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, involves the sale of non-exempt assets to pay off creditors. After the sale, most remaining debts are discharged, meaning they’re no longer owed. However, not all property is subject to liquidation.
Arkansas law provides a set of exemptions that allow you to keep certain assets, even in the event of bankruptcy. To determine which assets you can keep, it’s crucial to know which ones qualify for these exemptions.
Exemptions Under Arkansas Law
Arkansas offers several exemptions that protect various types of property from being seized during bankruptcy proceedings. These exemptions allow individuals to keep certain assets to help them get back on their feet after filing for bankruptcy. Here are some of the most common exemptions available in Arkansas:
Homestead exemption: Arkansas allows you to exempt up to $1,000 of equity in your home, or $2,000 if both spouses file jointly, according to the Arkansas Department of Finance and Administration. This means you can keep your home as long as the value of your equity is below the exemption limit.
Motor vehicle exemption: You can exempt up to $2,500 in equity for a single motor vehicle. If both spouses file jointly, the exemption increases to $5,000.
Personal property: Arkansas provides exemptions for personal property, including clothing, household items, and tools necessary for your work. Generally, you can exempt up to $4,000 worth of personal property, or $8,000 if both spouses file jointly.
Retirement accounts: Funds in qualified retirement accounts, such as 401(k)s or IRAs, are generally exempt from liquidation in a Chapter 7 bankruptcy.
Wages: Arkansas law protects a portion of your wages from creditors. Typically, up to 75% of your wages are protected, or a higher percentage if you’re supporting dependents.
Public benefits: Government assistance programs, such as unemployment benefits, Social Security, and disability benefits, are protected under Arkansas law.
It's important to note that some property isn’t exempt under Arkansas law and can be sold to pay off creditors. This might include luxury items or high-value assets that don’t qualify for an exemption. A bankruptcy attorney can help you understand how these exemptions apply to your situation and what property you may be able to keep.
Chapter 13 Bankruptcy
Unlike Chapter 7, Chapter 13 bankruptcy involves creating a repayment plan to pay off creditors over a period of three to five years. In Chapter 13, you may be able to keep all of your property, including those assets that might be at risk in a Chapter 7 filing, as long as you make the required payments under your plan.
In a Chapter 13 case, the bankruptcy trustee works with you to establish a payment plan that fits within your budget. You’ll pay a portion of your disposable income to creditors for the duration of the plan, and any remaining debts will be discharged at the end of the repayment period.
Key Assets You Can Keep in Chapter 13
Chapter 13 bankruptcy can be more complicated than Chapter 7 because it involves negotiations and monitoring by the court and the bankruptcy trustee. However, it does allow you to keep these key assets:
Home: If you’re behind on your mortgage payments, Chapter 13 can give you the opportunity to catch up on overdue payments over time without losing your home.
Vehicle: In Chapter 13, you can continue making payments on your car and avoid repossession.
Personal property: As long as your bankruptcy plan is acceptable to the court and your creditors, you may be able to keep personal property such as jewelry, electronics, and household items.
However, this doesn’t mean you can keep everything. If the value of your non-exempt property exceeds the value of your repayment plan, you might need to use some of your assets to settle the debt.
What Happens If You Have Secured Debt?
Secured debts are those that are backed by collateral, such as a mortgage or car loan. In both Chapter 7 and Chapter 13 bankruptcy, the handling of secured debts depends on your ability to keep up with the loan payments.
In Chapter 7: If you can continue making the required payments, you can generally keep the property associated with the debt. However, if you’re behind on payments or can no longer afford them, the creditor may be able to seize the property.
In Chapter 13: If you’re behind on secured debts, Chapter 13 allows you to catch up on those payments over time, keeping the property as long as you continue to make regular payments under the repayment plan.
Given the intricacies of bankruptcy law, it’s critical to work with a bankruptcy attorney who’s knowledgeable about Arkansas laws and the potential outcomes of your bankruptcy filing.
The Importance of Filing the Correct Chapter
Choosing between Chapter 7 and Chapter 13 can significantly impact what you’re able to keep. If you want to keep a significant amount of property, Chapter 13 might be the better option. It’s important to note that, while not discussed here, Chapter 11 bankruptcy is also an option for businesses facing financial difficulties.
However, if your primary concern is discharging unsecured debts such as credit card balances or medical bills, and you don't mind losing some assets, Chapter 7 might be a more straightforward choice. Consulting a bankruptcy attorney can help clarify which chapter is suitable to your situation and which assets you'll be able to protect.
Other Factors That Impact What You Can Keep
While Arkansas provides exemptions to protect certain property, a few other factors may influence the outcome of your bankruptcy case:
Value of assets: Even though you can exempt certain property, the value of the assets may play a role. For example, if your home’s equity exceeds the exemption limit, the excess equity might be subject to liquidation in a Chapter 7 bankruptcy.
Type of debts: Bankruptcy exemptions primarily protect personal property from unsecured debts. If you have a significant amount of secured debt, such as mortgages or car loans, your ability to keep the property tied to those debts will depend on whether you’re current on your payments.
Filing status: Whether you file individually or jointly with a spouse will affect the exemptions available to you. Filing jointly can increase the amount of property you can exempt.
Whether you file for Chapter 7 or Chapter 13 bankruptcy will determine the extent of property exemptions and your ability to retain personal possessions. Bankruptcy can provide a fresh financial start, but it's important to understand the implications it has on your assets. Hiring a bankruptcy attorney to assist you through this process will make it go smoothly.
Consult With My Firm Today
If you're considering filing for bankruptcy in Arkansas, it's essential to understand what assets you may be able to keep. By taking the time to assess your situation, you can make an informed decision and keep as many of your assets as possible.
My firm serves Harrison, Arkansas, and across Boone County, Newton County, Marion County, and Baxter County. Contact me at Watson Law Firm today to schedule a consultation with an experienced bankruptcy attorney.
