Will you lose all your property if you file bankruptcy? NO! You will most likely get to keep most if not all your property. When someone files bankruptcy, they can keep certain “exempt” property. In a chapter 7 case, the amount of property is limited yet includes many large assets such as a persons home, some equity in their car if fully owned and their qualified retirement account.

A Chapter 13 bankruptcy is a re-organization and the amount of property that can be kept is broader. A significant difference between a Chapter 7 and the Chapter 13 limitations as to how much property someone can keep is most significant to the self-employed. In the Chapter 7, the value of the stock or worth of the company must be surrendered to the Trustee, or bought back, once the exemption limitation is exceeded. In a Chapter 13, since it is a re-organization, there is surrender of the value that exceeds exempt amounts but is repurchased from the trustee at the fair value of the stock or liquidation value which is significantly lower than ongoing profit potential of the business. The business can then operate as it normally would and any buy back can be put in the plan.

This does not mean that all property can be kept. The Trustee would likely object to someone trying to keep “luxury” items. These items include timeshares, extra vehicles not needed for the business, motorcycles, watercraft – can’t keep that yacht and non-homestead land or buildings.  There is one important distinction when looking at buildings other than a person’s homestead which is when these buildings or land are leased. The Trustee looks upon these as a business, producing income that would help support the plan. They are, therefore, exempt. However vacant land or second investment properties would have to be forfeited. Proper planning prior to filing a bankruptcy can save these properties. Unfortunately, while in the Chapter 13 plan period, you will also forfeit your tax refund except that portion that is earned income credit.