It is natural to worry that Chapter 7 bankruptcy might require you to sell your car or perhaps your home to pay off debts. However, the bankruptcy system is not supposed to leave you destitute. In fact, even though Chapter 7 can involve liquidation, it is possible you will not have to sell anything off.
To figure out why your bankruptcy could end up as a “no asset” case, it may help to understand bankruptcy exemptions and secured property.
Exempted property
Even after filing for bankruptcy, you can still retain certain assets or properties if they qualify for exemptions. Usually, they include essential items such as a primary residence, a vehicle, household goods and tools of trade.
The purpose of exemptions is to help you maintain a basic standard of living and continue working as you undergo the bankruptcy process. This means creditors cannot go after the place you live or a vehicle you use to go to your workplace.
Property with liens
A secured debt involves collateral. Usually, your home or vehicle is an example of collateral that a creditor can claim if you fail to make your payments. Other forms of secured property include equipment, business inventory, invoices or even cash.
A no asset case
Since secured creditors already have claims on some of your property, the question becomes whether or not your unsecured creditors may make claims on other assets you own. If all of your property falls under bankruptcy exemptions or have liens or security interests attached to them, there is nothing left for your unsecured creditors to try to acquire.
In this situation, you qualify for a no asset case. Your bankruptcy trustee will file a “no asset” report with the court. However, if your trustee discovers any assets that are nonexempt at a later time, the court will notify your unsecured creditors so they may make claims.
Given that many Chapter 7 cases are no asset cases, it is actually common for people to not lose anything beyond their secured property in bankruptcy. Still, check your bankruptcy exemptions carefully to use them to their fullest extent.