Chapter 7 bankruptcy is common in the United States. It is a straightforward way to liquidate your assets and pay off your debts.
However, you only need to turn over part of your property for this type of bankruptcy. Chapter 7 has exemptions that allow you to keep the following:
- Cars or vehicles not exceeding a set dollar-amount limit
- Essential clothes
- Essential furniture and household products
- Jewelry not exceeding a set dollar-amount limit
- Part of your home’s equity
- Tools for your business or profession not exceeding a set dollar-amount limit
- Government benefits, such as welfare assistance, social security and unemployment benefits
- The compensation received from personal injury claims
These exemptions only apply to property considered necessities of modern life, including essential items you need to live and work.
Why are there exemptions?
These exemptions exist because taking everything can do more damage than good. Filing for bankruptcy should relieve the weight of massive debt from your shoulders, not remove your basic needs for a decent living, causing you more problems.
Due to this reasoning, Chapter 7 only requires you to give up the following property:
- Second home or car
- Family antiques
- Financial assets, such as stocks, bonds, bank accounts and other investments
- Pricey musical instruments unless you play them as a job
However, Chapter 7 has income limits and household size restrictions for eligibility. These qualifications can also vary depending on your household income compared to the state median.
If you do not pass eligibility for Chapter 7, you might need to look for other options to pay your debts.