Keeping Household Items During Bankruptcy

June 16, 2010

Many people mistakenly believe that the bankruptcy court will take everything they own and sell it to pay creditors.  Some of their descriptions of bankruptcy conjure up images of a poor unfortunate walking the streets wearing a wooden barrel with no property or money to his name. 

Well, you can stop worrying about barrel chafing because there are many legal protections that allow you to keep household property during bankruptcy.  These protections are generally limited to “common sense” amounts and typically apply to clothing, household furniture, musical instruments, books, electronics, appliances, etc.   

One stated goal of bankruptcy is to give the debtor a “fresh start,” so Congress and state legislators attempt to balance the requirement of the debtor to have basic necessities against your creditors’ interests in receiving payment for your debts.  The idea is to permit the debtor the things he needs for day-to-day living while prohibiting the debtor from living a lavish lifestyle at the expense of his creditors.  For instance, if you have a Steinway grand piano worth $50,000 in your living room, it will likely be taken and sold to pay creditors.  If you have a family piano worth $2,000, you can likely keep it. 

The truth is that only around four percent of Chapter 7 bankruptcy cases are “asset cases,” meaning the bankruptcy trustee receives money or an asset from the debtor.  In the vast majority of these “asset cases” the debtor loses a car or real estate in which he has too much equity.  It is very rare to see a debtor lose any household item during a Chapter 7 bankruptcy.  Debtors in Chapter 13 keep their property. 

Determining whether a household item is at risk is a simple arithmetic calculation.  First, start with the liquidation value of the item.  Often this value can be determined by looking at yard sales or internet auction sites like Ebay.  Next subtract the applicable state or federal exemption amount for that item.  Any remaining sum is unprotected equity.  Your bankruptcy attorney can discuss your options for protecting and keeping items with unprotected equity. 

It is important to correctly describe, value and apply the proper exemptions to household items in your bankruptcy schedules.  Once you have provided an adequate description and value of your household items, your attorney can apply the proper exemptions and protect your property from turn-over to the bankruptcy trustee.  Discuss any high-dollar household item with your attorney to ensure that you obtain full legal protection for your property.

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