Whether or not you will lose property in a bankruptcy case is a BIG DEAL to everyone that we meet with or talk on the phone with.
The big one is whether you will lose your house. Thanks to a rough real estate market most folks don’t have equity in their homes so they probably won’t lose their house in a bankruptcy case BECAUSE they filed a bankruptcy case. That being said, if you don’t pay for your house the mortgage company will eventually take the property in a foreclosure, but filing bankruptcy alone will probably not cost you your home.
It is important that you discuss your home and your intentions for your home thoroughly with an experienced bankruptcy attorney to be sure that you go over all possibilities. In some cases where there is some equity in your home a Chapter 13 will be your best bet or a reverse mortgage to pay down the debts you would need to pay because of the equity.
For folks who don’t own homes, the next big concern is cars. Once again, assuming you don’t have a Porsche 911 that is fully paid for you are probably ok on this front as well. The only time I have seen an issue with a car being sold in a bankruptcy case or even at risk the car was a brand new Lexus that was paid in full (and even then we were able to do a Chapter 13 case and protect the car). Most of the time my clients are driving Hondas with loans on them and we simply walk you through a reaffirmation of the loan, you pay your car loan, and it is all just fine. The bottom line is if you pay your car loan you keep your car.
What about other property in a bankruptcy case? Life Insurance with a Cash value, retirement accounts, pensions.
Retirement accounts can be protected up to a MILLION DOLLARS!!!!! I am dead serious. DO NOT withdraw money from your retirement account to pay creditors until you have talked to a bankruptcy attorney. If I have said this once I have said it a million times. Tell ALL your friends! If you take money out of your retirement account you get hit with penalties and taxes. If you are eligible for a bankruptcy case you get to keep your retirement money where it belongs AND get rid of your credit card debt.
I can protect life insurance with a cash value up to a certain amount. Sometimes this is a place where I see clients lose money. It is very important that this part of your financial existence is reviewed carefully. Sometimes my clients have taken all the money out in loans or there is very little cash value and I can protect it all. Other times we do have to work with the Chapter 7 trustee to cash out portions of the policy or file a Chapter 13 case to protect it.
But If You Do Lose Property…Let’s Just Keep This In Perspective
I had a conversation with a client not long ago that was losing property in their Chapter 7 bankruptcy case. They weren’t losing much property, it amounted to about 10% of their total debt being paid to their creditors. It was even in a place where we could easily cash out and not got whacked with taxes.
The client told me that when they did the math and they really thought about it, losing property sucked, but the stress and the cost of doing the bankruptcy case and losing that property versus the stress and cost of not having filed bankruptcy didn’t even compare. This client was unburdening themselves from a massive amount of debt they couldn’t afford for comparatively little cost and getting a clean slate to start their life on again. To this client that was worth more than they could even convey. So what if they lost a little money. It could have been so much worse. The fight was over. Now they could rebuild in peace.
This is all about perspective. A bankruptcy case is as helpful or as hurtful as you make it. This client chose to accept, learn, and move forward. I think that attitude will pay dividends in their future.
The Bottom Line
You probably won’t lose property. A thorough bankruptcy attorney should be able to tell you whether you can anticipate losing property prior to your case being filed. (Though sometimes we are are surprised too. I know I have been.)
But if you do, make sure you measure the costs vs the gains. If you are going to lose a $5,000 life insurance policy and discharge $50,000 in credit cards and gain piece of mind, that is a pretty good deal.
The best thing you can do is make sure you go over this with your experienced bankruptcy attorney and know what you are looking at and what the goals of your bankruptcy case are.
Interested in how we can help you with your bankruptcy case? Give us a call at 732-302-9600 or fill out our online consultation and we will call you!