Can I Leave My House or My Car Out of My Bankruptcy?

Protecting Home and Car with California Bankruptcy ExemptionsThis has to be one of the most frequent initial questions I get from prospective clients seeking bankruptcy advice in the Bay Area. The question of whether one can choose not to include or leave out a particular asset, like a home or a car, from one’s bankruptcy stems from a commonly held fear that if one files bankruptcy, he or she will lose all of his assets, which is simply not true.

The simple answer to whether one can leave an asset out of his bankruptcy is—no, you can’t, but that’s okay. When filing a Chapter 7 or Chapter 13 bankruptcy petition, you must include all of your assets, all of your debts and all of your income. But this does not mean that you will lose your home or your car, simply because they are listed in your bankruptcy petition. The fact is that very few bankruptcy filers lose any assets at all as a result of filing bankruptcy. In Chapter 13, which on average represents about one third of all bankruptcy filings in San Jose, nothing can be taken from the debtor by the bankruptcy trustee. In Chapter 7, only assets whose value exceeds California bankruptcy exemptions—or the amount of assets a California Chapter 7 bankruptcy debtor is allowed to keep—are taken by the bankruptcy trustee. And the California bankruptcy exemptions are generous enough that the majority of debtor filing Chapter 7 bankruptcy in San Jose, for example, lose nothing to the trustee.

Moreover, the asset that I find prospective bankruptcy clients to be most worried about—their home—is these days often underwater. They owe more on the home than it is currently worth. There is no reason for a Chapter 7 trustee to take an underwater property because their is no equity for the trustee to take. And even if there were some equity, a married couple filing Chapter 7 in California can protect up to $100,000 of equity under the California homestead exemption. If one or both of them are over 65, they can exempt up to $175,000 of equity.

A Chapter 7 bankruptcy trustee cannot take a debtor’s retirement savings either, as long as such savings are properly contributed to a qualified retirement savings account such as a 401(k), IRA, or employee pension plan. One could theoretically have $1 million saved in an IRA and not lose a penny of it in Chapter 7 bankruptcy.

In the vast majority of California bankruptcy cases, the debtor does not lose her home or her car to the bankruptcy trustee. Of course, in order to keep a home or a car through bankruptcy, whether in Chapter 7 or in Chapter 13, and to keep this property in the long term, the debtor still must stay current with the payments. If it is impossible for the homeowner to get current on her mortgage payments and continue making them, even with the help of a Chapter 13 payment plan, then she may after all lose the home to foreclosure, but not because of filing bankruptcy.

The idea that if one files bankruptcy, he will necessarily lose all his home, his car, and all other assets is a common but false perception about bankruptcy. If you would like to schedule a free consultation with an experienced bay area bankruptcy attorney, we will be happy to dispel this and any other misconceptions you may have about bankruptcy and see if Chapter 7 or Chapter 13 might help you get on the road to life free from debt.

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