US bankruptcy lawyerIf you have significant debts, you may be considering your options for receiving debt relief through bankruptcy. However, you may also be concerned that if you file for bankruptcy, you may be forced to surrender certain property that you own. By understanding the effects of different types of bankruptcy and how bankruptcy laws apply to the property you own, you can make the best decisions that will allow you to regain financial security.

Property Ownership in Chapter 7 Bankruptcy

In many cases, debtors will choose to pursue a Chapter 7 bankruptcy, since this will allow them to eliminate all of their unsecured debts. However, this type of bankruptcy may require a person to turn over certain items they own so that this property can be liquidated and some of the debts they owe can be repaid. Fortunately, some exemptions apply to the property that can be liquidated. Federal bankruptcy laws recognize the following exemptions in cases filed before April 1, 2022:

  • Homestead - A person may exempt up to $25,150 of the equity they own in their home.
  • Motor vehicle - A vehicle may be exempt if it is worth $4,000 or less.
  • Personal property - Multiple types of household goods may be exempt, including furniture, clothing, appliances, books, pets, and musical instruments. Individual items may be exempted if they are valued at $625 or less, and the total value of exempt property may be up to $13,400.
  • Tools of the trade - Professional tools, books, or other equipment used as part of a person’s profession that are worth a total of up to $2,525 may be exempted.
  • Jewelry - Up to $1,700 worth of jewelry may be exempt.
  • “Wild card” - Other property that does not fall into one of the above categories may be exempted, up to a total of $1,325. A debtor can also put up to $12,575 of an unused homestead exemption toward other types of property.
  • Life insurance - Up to $13,400 of an unmatured policy may be exempted.
  • Personal injury judgments or settlements - Damages awarded for loss of income in a personal injury lawsuit or compensation paid to a family member for a person’s wrongful death can generally be exempted. Non-economic damages, other than pain and suffering, of up to $25,150 are exempt.
  • Benefits and support payments - Social Security benefits, veterans’ benefits, unemployment benefits, disability benefits, and spousal support payments are exempt.
  • Retirement funds - In most cases, the full amount that is saved in a retirement account will be exempt.

In addition to the federal exemptions, each state’s laws define exemptions that apply to residents who file for bankruptcy. In many cases, state laws allow for additional exemptions above those that are provided in federal law. Some states allow debtors to choose either the state or federal exemptions.

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b2ap3_thumbnail_shutterstock_292965230-min.jpgPeople who have experienced financial difficulties that have caused them to be unable to pay their debts may be concerned about the steps that creditors may take to collect what is owed. Creditors or collection agencies may contact a debtor and ask them to make payments, and some creditors may act in a harassing manner, including making threats or contacting a person’s employer. In some cases, a creditor may initiate a lawsuit attempting to collect what is owed, or they may repossess property or begin foreclosure proceedings on a debtor’s home. For debtors who are considering bankruptcy, it is important to understand the protections they can receive, including the automatic stay that will go into effect during the bankruptcy process.

What Is the Automatic Stay?

In legal terms, a “stay” is an order by a court that requires parties to temporarily stop certain actions. When a debtor files a bankruptcy petition, an automatic stay will be put in place while the case is ongoing. This stay will require creditors to cease all collection actions, including:

  • Creditor harassment - Creditors will be prohibited from contacting a debtor and asking them to pay what is owed. They cannot call a person at home or at work, send them notices in the mail, or use any other methods to attempt to recover debts.

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find a bankruptcy attorneyMaking ongoing payments to pay off debts is a reality for most Americans. For those who struggle to make these payments or are unable to do so while covering their own living expenses, consumer bankruptcy can provide some relief and allow them to receive a fresh start. While many types of debts can be discharged through bankruptcy, there are rules about how these debts are addressed, and the elimination of certain types of debts may not be possible. Student loans, which are an issue for millions of Americans, are notoriously difficult to discharge. Those who are concerned about their ability to repay these loans will want to understand how they are handled during bankruptcy and how the laws may soon be changing.

The “Undue Hardship” Rule for Discharging Student Loans

Nearly all student loans are either provided through federal programs or are backed by the federal government. These loans generally cannot be eliminated through bankruptcy in most cases. To discharge student loans, a person must prove that repaying the loans would lead to “undue hardship.” This is a difficult standard to meet, especially since bankruptcy courts do not always agree on the definition of undue hardship. Typically, to prove undue hardship, a person will need to provide evidence showing that:

  • They have made efforts to pay off a student loan in the past.

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b2ap3_thumbnail_debt-discharge-bankruptcy-lawyer.jpgA family may experience multiple different types of financial difficulties that affect their ability to pay their debts while also covering their regular expenses. For those who are struggling with overwhelming debts, bankruptcy can offer relief by eliminating debts and allowing a family to regain control of their finances. The elimination of debts during bankruptcy is known as a “discharge.” However, it is important to understand how different types of debts are addressed during the bankruptcy process, including which types of debts can or cannot be discharged.

Bankruptcy and Non-Dischargeable Debts

During bankruptcy, debts may be handled differently depending on whether they are secured or unsecured. Most types of unsecured debts, such as credit card balances, can be discharged once bankruptcy is complete, and a debtor will no longer be required to pay these amounts to creditors. Secured debts which are backed by collateral may also be discharged, but when this happens, a creditor will usually repossess the property. For example, if a person chooses to use bankruptcy to discharge the amount owed on an auto loan, the lender will most likely repossess the vehicle. 

There are certain types of debts that typically cannot be discharged during bankruptcy, including:

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