Will you lose all of your property if you file a Chapter 7 case?

This is a matter of vital concern to many of my clients facing bankruptcy. They desperately want to know which possessions or property they will be entitled to keep and which will be open to seizure by creditors.

Well, let me reassure you on some points with this posting. There are basically three types of property in the eyes of bankruptcy court: Encumbered, unencumbered and exempt. I will explain how you tell the difference – and which type of property may be seized – in this post.

Will you lose all of your property if you file a Chapter 7 case?

Usually not. Certain property is exempt and may not be taken by creditors unless it is encumbered by a valid mortgage or lien. Encumbered property is property against which a creditor has a valid lien, mortgage or other security interest.

A person is usually allowed to retain his or her unencumbered exempt property in a Chapter 7 case. A person may also be allowed to retain certain encumbered exempt property (see below). 

What is exempt property?

Exempt property is property that is protected by law from the claims of creditors. However, if exempt property has been pledged to secure a debt or is otherwise encumbered by a valid lien or mortgage, the lien or mortgage holder may claim the exempt property by foreclosing upon or otherwise enforcing the creditor’s lien or mortgage.

In bankruptcy cases property may be exempt under either state or federal law. Exempt property typically includes all or a portion of a person’s unpaid wages, home equity, household furniture, and personal effects. As your attorney, I can inform you as to the property that is exempt in your case.

What encumbered property may a person retain in a Chapter 7 case?

You may retain (or redeem) certain encumbered personal and household property, such as household furniture, appliances and goods, wearing apparel, and tools of trade, without payment to the secured creditor, IF the property is exempt and if the mortgage or lien against the property was not incurred to finance the purchase of the property.

You may also retain without payment to the secured creditor any encumbered property that is both exempt and subject only to a judgment lien that is not divorce-related.

Finally, you may retain certain encumbered exempt personal, family, or household property by paying to the secured creditor an amount equal to the replacement value of the property, regardless of how much is owed to the creditor.

Thanks for reading and let me know if you have any questions,

Matt
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Matt Hughson
New York Bankruptcy Lawyer

Ziff Law Firm, LLP
303 William St., Elmira, NY 14901
Tel: (607) 733-8866
Fax: (607) 732-6062
Toll Free: 1-800-943-3529
Email: mhughson@zifflaw.com
Web: www.zifflaw.com

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