What I just said -- that you have to get caught up if you are behind and keep making regular payments -- applies to both Chapter 7 and Chapter 13 bankruptcy. This article applies mainly to Chapter 7 bankruptcy, and not Chapter 13. To learn more about your options for bankruptcy, please read my previous blog posts on the subject. Here is a link:
When you file for bankruptcy, the bankruptcy trustee (the person who is in charge of administering your bankruptcy) will take all of your property and sell it to pay your creditors, or the people you owe money to. There are three basic ways to keep your property out of the hands of the bankruptcy trustee:
(1.) EXEMPT: Property that is exempt does not go to the bankruptcy trustee and does not become part of what is called your bankruptcy estate. Your bankruptcy estate is all of the property that is not exempt and available to the bankruptcy trustee to pay your creditors. The law provides that some property is automatically exempt,and does not become part of your bankruptcy estate. You can decide whether to use the exemptions provided by federal law or state law. For most people. federal exemptions are more appropriate, although there are good reasons to choose state exemptions.
Regardless of whether you choose the state or federal exemptions, you get to keep the clothes on your back, your "household goods and furnishings" (like your furniture, radio, television, etc.) up to a certain value, and a car (again up to a certain value). These are only examples, and there are many more exemptions available. For a full list, see 11 U.S.C. 522 and Minn. Stat. 550.37.
(2.) REAFFIRM: If you owe money and are making payments on a loan that is secured by an item of property, such as a car or house that the creditor (the person to whom you owe money), you can generally keep that property if it is exempt and you reaffirm the debt and agree to keep making your payments when they come due. This happens most often when you are making payments on a car loan or mortgage, and want to keep the car or house. So you reaffirm the debt, and promise to keep making payments on it in order to keep the property.
To reaffirm a debt, you sign a document called a Reaffirmation Agreement that is usually prepared by the creditor. Every Reaffirmation Agreement must be approved by a judge, unless it involves real property. Approval is not automatic, and a judge does not have to sign off on a Reaffirmation Agreement.
Sometimes, a judge does not approve a Reaffirmation Agreement, especially if you are trying to reaffirm a debt on something that is not practical, such as a boat, recreational vehicle, ATV (all-terrain vehicle). Usually, if a Reaffirmation Agreement is not approved, the judge thinks it makes more sense for you to give up the property than keep it and keep making payments. In such a case, I generally recommend contacting the creditor to see if the creditor will let you keep the property if you continue to make your payments.
(3.) BUY BACK: As a bankruptcy attorney, I try to find as many exemptions as possible to keep your property out of the hands of the bankruptcy trustee. If, for whatever reason, a certain item of your property goes to the bankruptcy trustee, you can buy that property from the trustee and get the property back by paying the value of the property to the trustee. For example, if you have a nonexempt item of personal property that goes to the trustee, you can pay the value of that property to the trustee to get the property back.
Baland Law Office, P.L.L.C. represents consumer debtors and small businesses in both Chapter 7 and Chapter 13 bankruptcy proceedings. Please call (763) 450-9494 to schedule an appointment to discuss your situation today and find out whether declaring bankruptcy is the right option for you!
DISCLAIMER: Baland Law Office, P.L.L.C. is a debt-relief agency, and Timothy H. Baland, Esq. is a debt-relief agent. We help people like you to obtain bankruptcy relief.
WARNING: The information contained in this article does not constitute legal advice and may not be applicable to your situation. Reading this blog post does not create an attorney-client relationship between you and Baland Law Office, P.L.L.C. This blog post may constitute attorney advertising. Further, Tim is licensed only in Minnesota state and federal courts, and the information that is provided here is applicable only to those jurisdictions. You should always discuss your situation with an attorney before taking any action based on what you may read in this blog. To that end, please call (763) 450-9494 to set up an appointment to discuss your situation.