What Am I Allowed to Own after Bankruptcy?

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There are many common misconceptions about bankruptcy. One of these misconceptions is that filing for bankruptcy means giving up everything you own. While it is true that filing for certain types of bankruptcies will trigger an obligation to sell some of your property, the bankruptcy process is not designed to leave you without any assets to your name.

Selling Your Assets in Bankruptcy: Chapter 7 vs. Chapter 13

Most individuals have two primary options when it comes to filing for bankruptcy: They can file under Chapter 7 of the U.S. Bankruptcy Code or they can file under Chapter 13. Filing under Chapter 7 results in cancellation (or “discharge”) of your debts – with a handful of exceptions – while filing under Chapter 13 involves “reorganizing” your debts so that you can pay them off over a three to five year period.

If a Chapter 7 bankruptcy results in discharge, why would someone choose to file for a reorganization under Chapter 13? There are actually a number of reasons. One of which is that debtors are required to sell their “non-exempt” assets when filing under Chapter 7. So, a Chapter 13 bankruptcy does not erase your debts, but it also does not trigger an obligation to sell your property. A Chapter 7 bankruptcy can result in a full or partial discharge. But in order to receive this protection, you will be required to sell certain assets with the sale proceedings going toward paying your creditors.

Exempt Assets Under Chapter 7: What Are You Entitled to Keep?

In a Chapter 7 bankruptcy, certain types of assets are exempt from the requirement to sell your property in order to pay down your debts. These assets tend toward those that are necessary to your occupation and daily living, though various non-necessary assets qualify as exempt as well. It greatly depends on the value or equity you have, however you typically would be able to exempt and keep:

  • motor vehicle (up to a certain value)
  • Household appliances
  • Jewelry (up to a certain value)
  • Pension, welfare, social security, unemployment, and other accumulated benefits
  • Personal injury damages (up to a certain value)
  • Reasonably-necessary clothing
  • Reasonably-necessary furnishings and home goods
  • Tools you use for work (up to a certain value)
  • Your primary residence (up to a certain value and with some exceptions)

In contrast, assets that are generally classified as non-exempt in Chapter 7 bankruptcy proceedings include:

  • A second home
  • Investments (such as stocks and bonds)
  • Luxury items

Acquiring Property after Going through a Bankruptcy in Wisconsin

Once you complete the bankruptcy process, there are no restrictions on the types of property you can acquire. You can purchase any non-exempt assets you wish, provided that (i) you are able to re-establish your credit or you can afford to do so independently; and (ii) if you filed under Chapter 13, you are able to meet your reorganized payment obligations. But, keep in mind that there are limits on the ability to file for bankruptcy again, and quickly getting yourself back into financial trouble is not likely to sit well with the judge.

There is one important caveat to the ability to freely acquire property after a bankruptcy: If you become entitled to an inheritance, property settlement, or the proceeds of a life insurance policy within 180 days of your bankruptcy filing, you may be required to pay these funds to your creditors. This is something that it will be important to keep in mind, particularly if you are expecting to receive a sum of money at the time you file for bankruptcy.

Foreclosure vs. Bankruptcy: Weighing Your Options

What if you are unable to pay your mortgage? What if you haven’t been paying your mortgage for some time and now your bank is threatening to foreclose on your primary residence? Should you allow the bank to foreclose your home or should you file for bankruptcy?

While there is not a single “right” answer to this question, many people in this situation will benefit from filing for bankruptcy. However, contrary to popular belief, facing foreclosure does not necessarily mean that you will need to file for bankruptcy.As noted above, primary residences are generally exempt from sale in a Chapter 7 bankruptcy. Additionally, filing for bankruptcy triggers what is known as an “automatic stay,” which means that the bank will be prohibited from foreclosing – at least temporarily. On the other hand, if your mortgage is your only debt, your bank may agree to waive your deficiency during the foreclosure process, in which case you would have no need to file for bankruptcy.

There are broader considerations involved in filing for bankruptcy. And depending upon your financial circumstances, you may have other alternatives available as well. If you are facing foreclosure, you should discuss your situation with a bankruptcy attorney as soon as possible. If you do nothing, your bank will almost certainly proceed with the foreclosure process and protecting yourself after the process has begun can be a very difficult task.

Learn More about Filing for Bankruptcy in Wisconsin

If you are thinking about filing for bankruptcy under Chapter 7 or Chapter 13, it is important to learn as much as you can so that you can make as informed a decision as possible. For more information about filing for bankruptcy in Wisconsin, we encourage you to read:

Disclaimer: This Article Is Not Legal Advice.

Never rely on an article for legal advice as the law frequently changes, information may not be accurate, there may be exceptions to a rule, and reliance may be detrimental. Always consult one of our experienced attorneys for competent, current, and accurate legal advice.

Schedule an Initial Bankruptcy Consultation at Crooks, Low & Connell, S.C.

At Crooks Low & Connell, S.C., we provide personalized and strategic legal representation for individuals who are thinking about filing for bankruptcy in Wisconsin. Our experienced attorneys can help you weigh your options. And if bankruptcy is your best option, we can help you pursue the best path forward in light of your unique personal, family, and financial circumstances. To discuss your situation in confidence, please contact our Wausau, WI, law offices to schedule an initial consultation. We are here to help, so call (715) 842-2291 or request an appointment online today.