Consumer Bankruptcy:

Protecting Your Assets

There are a variety of ways in which bankruptcy can be used to protect your assets. In Chapter 7, all non-exempt assets are taken by the bankruptcy trustee and liquidated, in order to pay off creditors. However, there are ways in which, before you file, you can change non-exempt items into exempt items. This process, known as exemption planning, is complicated and varies from place to place (and even judge to judge), and therefore the advice and insight of an experienced local attorney is very important. If a creditor has a lien on your property which impairs an exemption to which you have the right, it is possible to “avoid” the lien. This means that the lien is eliminated and the creditor (who holds the lien) cannot take your property in order to satisfy the debt. In some states, there are homestead laws that only protect you from subsequent creditors; in these states, it may be possible to use the homestead exemption against all creditors, even if it is only filed for the day before you file for bankruptcy.
In Chapter 13, you can protect your car or home by including the arrears for your mortgage or car loan in the repayment plan; in this way you can escape foreclosure or repossession.