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If you are considering filing for bankruptcy, you might be wondering what will happen to your money and property. Will you lose everything you have worked so hard for? Depending on the type of bankruptcy you file, you may be required to turn over certain assets. In a Chapter 7 bankruptcy, you may receive a discharge of most of your debts, but the bankruptcy trustee may seize some of your assets and liquidate them in order to repay some of what you owe to creditors. Fortunately, exemptions apply to your property, and you will be able to keep any assets that are exempt. However, determining whether to use exemptions that are available under federal or state laws can sometimes be difficult.

Federal Bankruptcy Exemptions

Under federal law, certain types of assets are exempt from bankruptcy. The federal exemptions are updated every three years, and the most recent update went into effect on April 1, 2022. Some examples of the current federal exemptions include:

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There are multiple types of debts that can cause a person or family to experience financial difficulties. While filing for bankruptcy can provide relief from debts, it is important to understand how different types of debts will be handled during the bankruptcy process. Understanding how domestic support obligations, which include child support and spousal support, will be affected by bankruptcy can be a crucial part of the planning process. If you are currently paying alimony or child support, you will want to work with an attorney to determine your best options for addressing these obligations and other debts you owe.

Understanding How Priority Debts Are Handled During Bankruptcy

Domestic support obligations are considered to be priority debts, and this means that they typically cannot be discharged through bankruptcy. Court-ordered child support or spousal support must be paid as required, and any missed payments will need to be made up. In addition, interest may apply to past-due amounts.

If you file for Chapter 7 bankruptcy, certain types of debts may be eliminated, such as credit card balances and medical bills. While you will still owe domestic support obligations, the elimination of other debts may free up money that can be used to pay child support or alimony. You will continue to be responsible for these payments after you file for bankruptcy, but by becoming current on your obligations, you can ensure that you will be able to maintain ongoing financial success. 

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There are many situations where Americans may encounter financial struggles, and they may be unable to pay certain bills due to issues such as the loss of a job. However, missed payments can have consequences, and if a person defaults on their auto loan, the lender may repossess the car. In situations where a debtor is facing a potential repossession or where a lender has already taken possession of the vehicle, bankruptcy may be an option that will allow them to stop the repossession process.

Filing for Bankruptcy Before a Repossession Takes Place

In cases where a person has failed to make payments on an auto loan, bankruptcy can offer some protection against repossession. After filing a bankruptcy petition, an automatic stay is put in place. This means that creditors are prohibited from taking any collection action, including repossession. The automatic stay will remain in effect until the bankruptcy case is concluded.

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b2ap3_thumbnail_shutterstock_1898703490-min.jpgFor anyone who owns a home, the possibility of foreclosure may be a concern. A homeowner who experiences financial difficulties such as the loss of a job may be unable to make mortgage payments. Late payments may result in fees and penalties, and a homeowner may struggle to make up what is owed while continuing to make ongoing payments and covering other expenses. When a loan is in default, a lender may begin foreclosure proceedings, and this could result in the loss of the home. In these situations, homeowners will need to understand their options and determine the best ways to proceed.

Bankruptcy and Other Foreclosure Defense Options

In many cases, filing for bankruptcy is a good first step that will stop a lender from proceeding with a foreclosure. After a bankruptcy petition is filed, a “stay” will automatically be put in place by the bankruptcy court that will force creditors to cease all debt collection actions, including foreclosure proceedings, repossession of property, or wage garnishment. The debtor can then determine whether Chapter 7 or Chapter 13 bankruptcy will allow them to eliminate certain debts, become current on their mortgage, and avoid the loss of their home.

As an alternative to bankruptcy, a homeowner may be able to contact their mortgage lender and determine whether loan modifications may be made. Depending on the debtor’s circumstances, a lender may agree to a forbearance in which a person may not be required to make payments for a certain period of time, and these payments may be added on to the end of the loan. A lender may agree to add the missed payments and fees to the principal of the loan (known as “capitalization of arrears”), or other adjustments may be made, such as lowering the interest rate. By reaching agreements with a lender, a homeowner may be able to find affordable solutions that will allow them to continue making mortgage payments and avoid foreclosure.

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b2ap3_thumbnail_shutterstock_98788745.jpgPeople who are looking to get out of debt may be unsure about their options for filing for bankruptcy, but by consulting with an attorney, they can determine the best methods for eliminating debts, reducing the amounts they owe, and avoiding issues such as foreclosure. Many people are unaware of the benefits they may be able to receive by filing for bankruptcy, which may include the reduction of the amounts they owe on certain loans. A bankruptcy lawyer can help determine whether techniques known as “cramdowns” or “lien stripping” may be used to address home mortgages, auto loans, or other debts.

Reducing and Reclassifying Debts During Chapter 13 Bankruptcy

The approach to different types of debts may differ depending on the type of bankruptcy a person pursues. While Chapter 7 bankruptcy will allow for the elimination of most debts, this could result in the loss of certain assets, including through the repossession of a vehicle or a home foreclosure. For those who are looking to maintain ownership of their assets, Chapter 13 bankruptcy may be the preferred option.

In a Chapter 13 case, a debtor will propose a repayment plan in which monthly payments will be made toward certain debts over several years. In addition to paying some of what is owed toward unsecured debts (such as credit cards or medical bills), missed payments toward secured debts (such as a home mortgage or auto loan) may be made up through the repayment plan. When creating a repayment plan, some secured debts may be reduced, or they may be reclassified as unsecured debts.

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