What Assets Are Protected in a Bankruptcy Filing?
Interviewer: What are the major assets that people would be surprised they can keep even in bankruptcy?
Your Home May be Protected in a Chapter 7, If You Do Not Have Too Much Equity in It
John Reade: In a Chapter 7 bankruptcy, all or almost all of a person’s assets usually can be protected. Usually, we can protect all of a person’s assets. Now we can use federal bankruptcy exemptions or Oregon state bankruptcy exemptions to protect assets. A person can keep a home as long as there’s not too much equity in it, and they keep making the monthly mortgage payments.
Pension and Retirement Accounts Are Protected
A filer can keep their car, as long as they do not have too much equity in it, and continue to make the monthly payment. One can retain their household goods and furnishings. Pension and profit-sharing plans or retirement plans are almost always protected pursuant to Oregon bankruptcy exemption and federal bankruptcy exemption.
Interviewer: In terms of household items, what about TVs, jewelry and clothing? What about vehicles?
John Reade: Usually, all household goods and furnishings and TV’s, jewelry, and vehicles can be protected. And what some potential clients do not realize is in a Chapter 7 bankruptcy, the trustee–that’s the person who oversees the bankruptcy process—views assets as far as what they could get for the asset on a quick sale or at an auction. That is how the values of assets are determined.
Someone may think, “Oh, my vehicle is worth X dollars.” But when you look at the wholesale value of the vehicle or the trade-in value, it is worth a lot less than what they thought it was worth, from a bankruptcy perspective.
Secured Debts and Bankruptcy
Interviewer: What kind of debts cannot be discharged in bankruptcy?
John Reade: A secured debt cannot be discharged, if the person wants to keep the property that is security/collateral for the loan. A secured debt is where the person’s promise to repay the loan is supported by a piece of property or collateral. For secured debts a person is going to have one of two choices, generally. One choice is to keep that secured asset, which could be a car, and continue to pay for it. The other choice is to give the car back to the lender and owe them no more money on the car. The choice on a secured debt is to keep it and pay for it, or relinquish the asset and cease paying for it.
If a person has purchased something expensive that has not been paid off, typically, like furniture or a major appliance, and they want to keep that asset in a Chapter 7 bankruptcy; then the creditor may require that they pay them (the creditor) the fair market value of the item, if the person filing for bankruptcy wants to keep it.
Sometimes the fair market value may be less than what one owes on it. Sometimes it may be about the same amount as what they owe. If a creditor wants to pursue what is called a purchase money security interest in an asset, then the client in a Chapter 7 bankruptcy is going have to pay the creditor the fair market value of the asset or the amount owed, whichever is less.
Most Unsecured Debts Are Discharged in Bankruptcy
Unsecured debts are debts where the person’s promise to repay is not supported by a piece property or collateral. Your typical examples would be credit card purchases, cash advances, signature loans, medical bills, deficiencies on a car, etc. Most unsecured debts get discharged in a Chapter 7 bankruptcy. It should be noted that there are certain exceptions or debts that a person can not get rid of in a Chapter 7 Bankruptcy.