If you file for bankruptcy, one thing that you want to look into is the list of different exemptions that you can utilize. Essentially, if you’re filing a Chapter 7 bankruptcy, you may be liquidating some of the assets that you own. While actually rare, this means that some of your assets must be sold and the proceeds from these sales must be used to pay creditors.
However, you can use exemptions to protect certain types of property. One example of this is that you may be able to protect some or all the equity you have in your home. Another is that you may be able to protect some or all of the equity that you have in your primary vehicle so that you do not have to sell it. When are you able to use these types of exemptions?
A fresh financial start
People often think about bankruptcy simply as a way to eliminate debt. From this perspective, it sometimes makes the most sense to get rid of many of the more significant assets they own, so there are many misconceptions surrounding exemptions.
However, the actual goal of bankruptcy is to give you a fresh financial start. This is done by eliminating some of the debt, but it would not be helpful if it made you destitute as a result.
To counter this, you’re allowed exemptions for things that are actually important and necessary in your life. A common example is an exemption for the tools of the trade that allows someone to continue working even after they’ve declared bankruptcy.
The potential to keep your house
As noted above, one possible exemption is for the equity in your house. Bankruptcy can be a tactic to keep your home when you’re facing foreclosure. It starts with an automatic stay, which buys you time by pausing the foreclosure until the conclusion of the bankruptcy case. But you can still protect that equity in the home, and filing for bankruptcy may help you re-organize your finances so that your home is affordable.
There has been an uptick in these types of cases lately. Foreclosure often comes when there is a reduction in the housing market and/or the job market. This may only become more common moving forward, depending on how the economy responds.
Starting the process
If you are considering declaring bankruptcy, take the time to carefully look into all of the legal steps you need to take. Using this financial tool properly can help you protect your future.
