Chapter 7 is the most common bankruptcy option for individuals who are facing overwhelming debt. Essentially, Chapter 7 bankruptcy results in nearly all debt being “discharged” or eliminated.
Chapter 7 bankruptcy is also called “liquidation” bankruptcy because the process requires rounding up the filer’s property and assets and then selling, or liquidating, them in order to pay off as many debts as possible.
The liquidation aspect of Chapter 7 tends to scare people because they worry that they will lose their car or home. However, state and federal bankruptcy laws provide many exemptions to the liquidation process so filers typically don’t lose much.
Exemptions allow filers to protect certain property and assets from their creditors.
When it comes to homes and cars, bankruptcy exemptions typically apply with equity limitations. For example, the Wisconsin homestead exemption allows individual homeowners to protect up to $75,000 in home equity and married homeowners who file for bankruptcy jointly to protect up to $150,000 in home equity.
Here are a few other exemptions under the federal Bankruptcy Code:
- Motor vehicles
- Animals
- Crops
- Personal property
- Wrongful and personal injury death recovery
- Retirement accounts
Here are a few other exemptions that are available under Wisconsin law:
- Bank deposits
- Personal property
- Motor vehicles
- Pension and retirement benefits
- Workers’ compensation
- Unemployment compensation
- Veterans’ benefits
Some people mistakenly believe that filing for bankruptcy means losing all of your assets and property. As you can see, while bankruptcy offers filers a fresh start, it does not require filers to start completely new by liquidating all of their property and assets.
Talk to an experienced bankruptcy lawyer for information on how your property and assets may be treated during a Chapter 7 bankruptcy filing.
