What will happen to your property – and everything you have worked for – if you file bankruptcy?
This is the most common worry that anyone facing significant debt has. This concern is often what makes individuals wary of seeking relief for that debt as well. It is understandable to worry about your property, everything from your family heirlooms to your family’s home.
But is this truly something you should worry about? It will help to look at the facts versus the myths that often surround Chapter 7 bankruptcy.
Fact: Chapter 7 does mean liquidating assets
It is true that filing Chapter 7 bankruptcy does mean you may have to liquidate some of your assets. This generally means the bankruptcy trustee will:
- Sell certain assets and property that are not protected under available exemptions; and
- Distribute the proceeds from such sales to creditors to repay debts.
For example, some expensive jewelry or a brand-new car with positive equity might be sold in the liquidation process.
Myth: That means all of your assets will be liquidated
Simply because Chapter 7 involves liquidation does not mean that you will lose everything. This is one of the most persistent misconceptions about bankruptcy. In most cases in New Mexico, no assets are sold whatsoever.
It is critical to note that the goal of bankruptcy is to help you find debt relief and make a fresh start. In order to make that fresh start, debtors have to be able to retain certain assets. Therefore, a liquidation bankruptcy will not lead you to lose everything you own, as many people believe.
Even so, many people still wonder how they can protect their property if they pursue bankruptcy.
Fact: Some, if not all, of your property will be exempt
When you file Chapter 7 bankruptcy, you will also be able to list exemptions – or property that is exempt from liquidation. These assets are often necessities, including but not limited to:
- A certain amount of equity in your home
- A certain amount of equity in one vehicle
- Certain personal property, including jewelry, furniture, computer, etc.
- Your retirement or pension
- Certain benefits, such as workers’ compensation
In New Mexico, you can choose to use the state or federal exemptions when you file, whichever is more beneficial to you. Additionally, each spouse gets to claim exemptions, essentially doubling them for a married couple.
Seeking relief from debt can be challenging, but you will not lose everything if you move forward with bankruptcy.