Protecting Your Rights And Your Future

How non-exempt assets work in bankruptcy

On Behalf of | Apr 15, 2021 | Chapter 7

Bankruptcy gives debtors in Rogers, Arkansas, debt relief when they see no other way to pay it. There are several types of bankruptcy, but most debtors file Chapter 7 or Chapter 13. Debtors who file Chapter 7 usually have to sell some personal property through the trustee. However, that doesn’t mean they lose everything depending on the exemptions.

Non-exempt assets in Chapter 7 and Chapter 13 bankruptcy

A non-exempt asset in Chapter 7 means the court considers it non-essential. Non-exempt assets vary by state, but commonly include vacation homes, second vehicles, valuable jewelry, non-essential business tools, and certain retirement accounts. When the trustee sells the assets, they divide the money among creditors, paying priority debts first, such as a mortgage or back child support.

Chapter 13 doesn’t require the debtor to sell assets, but they must maintain the repayment plan. Instead of selling assets, the debtor pays the unsecured creditors an amount equivalent to the nonexempt property. The value of assets may also influence the amount a debtor pays because the courts use this to determine payments.

State and federal exemptions

If a debtor wants to keep certain assets in Chapter 7, they can check into state or federal exemptions. Less than half of states are “opt-out” states, which means they don’t have federal exemptions available. The other states allow the debtors to choose which exemption they use, but they can’t claim both exemptions.

Debtors may apply the federal homestead exemption or state homestead exemption to keep their home out of bankruptcy. The equity is figured by subtracting the current home value from the mortgage. In Arkansas, a single homeowner can exempt up to $750 in home equity, and married homeowners can exempt up to $1250. Debtors may apply exemptions to non-exempt assets in their state or use a wild card exemption when the asset lacks enough equity.

Bankruptcy enables a debtor to get a fresh start, but they must fulfill all the case requirements. An attorney may help lower their risk of dismissal and offer advice.