As a bankruptcy lawyer I spent a good amount of time clarifying some preconceived notations that the general public have in regards to bankruptcy and often times a client is much more relaxed and less stressed out once they have an accurate idea of how the process works. The Botelho Law Group Blog is a great way I can share some of these more common questions and my answers to such. Of course every client’s set of facts and every bankruptcy is different, but I will be sharing some general information to help debunk some of the more popular myths as well as answer some of the common questions. Today’s post is focused on if a client will lose their assets in a Chapter 7 Bankruptcy.
A quick Google search online will lead to the discovery that many bankruptcy lawyers refer to a Chapter 7 Bankruptcy as the “liquidation chapter”. Potential clients get nervous about exploring bankruptcy to solve their financial issues in fear that all of their assets will be liquidated and they will be left with nothing. The fact of the matter is that in majority of Chapter 7 Bankruptcies the client does not lose their assets during the process. Of course there are cases where some assets are sold in order to pay some of their debts, but there are very specific rules that help protect the debtor in bankruptcy from losing the common assets that are essential for day to day living.
Whether a particular asset is at risk of being liquidated in a bankruptcy depends on the value of the property as well as the potential exemptions used by their bankruptcy lawyer. If an asset is considered exempt, the trustee assigned to the case will not try to take and liquidate the property. In Massachusetts we have two sets of exemption rules that can be used. These include Federal and State exemptions. An experienced bankruptcy attorney will review what assets you own and determine which set of exemptions will result in the best result for that particular case.
The first part of the analysis concerning exemption of property is how much the asset is worth. The main idea of this portion of the analysis is how much it would take to replace that asset with one of similar age and condition. For example, a common concern bankruptcy clients have is if they can keep their car. Instead of valuing it at the purchase price we look at Kelly Blue Book to determine the value of replacing the vehicle with one in similar condition, age, and amount of miles. Needless to say, the value of most everything you own is likely less than what was paid for it unless we are dealing with a collectable item such as an antique. Having an accurate fair market value for all assets is very important when looking towards the Bankruptcy Court for relief.
The second part of the analysis for seeing if property is exempt deals with the exemptions. Going back to the car example, in Massachusetts the current state exemption for such is $7,500. If the Kelly Blue Book value of your automobile is less than that amount our analysis is over and the car will be exempt and not at risk of being liquidated. If the value is slightly higher it might still be exempt because the trustee will factor in the cost of selling the property and determine if liquidating the asset would truly be worthwhile. It is also important to note that in the state exemptions in Massachusetts there is also a “wildcard” exemption that can be used on any property. So there is potential to “save” a vehicle that is actually worth much more than $7,500 depending on how much is left in the wildcard exemption.
At the Botelho Law Group an experienced bankruptcy lawyer will take the time to properly review all of your assets and analyze them with both sets of exemptions to determine what assets, if any, might be at risk of being liquidated during a Chapter 7 Bankruptcy. I hope this article helped shed light on the myth of bankruptcy clients losing everything and provides hope that financial relief is available without losing your possessions.
If you have questions regarding bankruptcy, please feel free to call or email to set up a free consultation.
Joseph F. Botelho, Esq.
BOTELHO LAW GROUP
Attorneys At Law
901 Eastern Ave.
Fall River, MA 02723
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