A Chapter 7 bankruptcy is a type of bankruptcy that requires liquidation. Any assets that are not exempted or necessary in your life may be liquidated (sold) to pay back the debts you owe. You could lose all kinds of assets in a Chapter 7 bankruptcy, but most people won’t lose much at all thanks to the exemptions provided.
If you are concerned about applying for a Chapter 7 bankruptcy because you’re concerned about losing the basics, you shouldn’t be. Usually, it’s not typical for people to lose their necessary wardrobes, work clothing or other essential items. However, there are exceptions.
When could you lose clothing items in a bankruptcy?
The only time you’d usually lose clothing in a bankruptcy is if your clothing items are of a high value. For example, certain name brand goods could be valuable if sold at auction, so those might be subject to sale in a liquidation bankruptcy unless you use an exemption to protect them.
Here’s an example. Imagine you have a Louis Vuitton bag that is valued at $700 on the current market. That’s a significant value, so that item may be sold to repay creditors (if you don’t use an exemption).
Comparatively, imagine you have an off-brand bag that cost you around $50. The likelihood of it selling for what you paid for it is low, and even if sold, it may not bring in much extra money. More trouble than it’s worth, the court may not seek to have you sell that asset.
Bankruptcy courts aren’t designed to make you start from scratch, so the judge and others working on the case with you will consider the value of your assets as a method of determining what, if anything, should be liquidated to repay the debts that you owe.
What should you do if you are struggling with debt?
If you’re struggling with debt, now may be the right time to consider bankruptcy. Bankruptcy is not the only option available, but it could be the right option for you if you cannot repay what you owe and are falling behind on your bills.