Chapter 7 Bankruptcies
Many of my clients come to me with the same initial question – “will I lose all of my property in a bankruptcy”. The answer is almost always “no”, you will not lose all of your property. The truth, however, is that there is a sacrifice involved in filing bankruptcy, though that sacrifice is often well worth it. A chapter 7 bankruptcy is often a good solution if you qualify, that is:
- Your gross, non-exempt monthly household income is below the median income for a household of your size under the means test (by “non-exempt” I mean income OTHER THAN social security income, unemployment compensation, disability benefits and certain other types of non-wage income), or, if you income is above this level:
- Your debts are primarily business and not consumer debts
- You qualify under another exclusion from the means test requirement, such as for certain active service members.
Your attorney will legally protect as much of your property as possible using “exemptions”, or legal “allowances” with which to shelter the value of your goods, from clothes to cars and everything in between. If your attorney has enough exemptions, and you have very little property you may have a “no asset” 7, and you will move through the bankruptcy process fairly quickly.
It’s important to remember, however, that the value of your belongings might exceed the amount of your available exemptions. This is so even if you believe, as many do, that “I really don’t have anything of any value”. This may be true if you were to hold a garage sale. The bankruptcy trustee, however, sometimes orders an appraisal of your household goods (by appointment), and that appraiser often assigns somewhat inflated values to your things. As a practical matter, it is often difficult, if not cost prohibitive, to fight it out as to whether your couch is worth $50.00 or $150.00. This is unfortunate but part of the way the system works. Items that typically fetch a higher value under this standard are appliances, electronics and any jewelry with gold, silver or precious stones of any kind.
One way to protect yourself against an appraiser inflating the value of your property is to order an appraisal yourself. There are appraisers whose estimates (if still high), will be accepted by the court. This is especially true in the case of cars. The Middle District of Florida uses the “clean retail” value of a car based on its age and mileage using NADA (www.nadaguides.com). This site almost always inflates the value of old cars by 30% or more. Getting your own appraisal backs up the value you want to put on your bankruptcy petition in advance. That way, you know what you’re getting into and where you stand as to your exemptions.
So, what if you run out of exemptions? The total value of your goods that exceeds the amount of your exemptions is called an “overage”. In a chapter 7 bankruptcy, you have three ways to address this overage:
Surrender (give to the court) property whose value totals the amount of overage. The bankruptcy trustee arranges to sell this property at auction, as a lot
“Buy back” your non-exempt property, that is, pay into the court a monthly amount that covers the non-exempt amount over a 12 month period
Surrender some property and buy some property back
So, that’s the sacrifice if you do not qualify as a “no asset” 7. Your bankruptcy attorney should be willing to give you an estimate of what to expect so you can plan accordingly. If you accept that you do have to surrender property, you can make a rough plan for what you can part with and what you want to keep. If you want to buy property back, you can think of ways you might come up with the money.
Sometimes, however, your overage might be too big to buy back over 12 months, yet you have property that you want to keep. In this case, you are often better off filing a Chapter 13 bankruptcy.