Will all of my debts be wiped out in bankruptcy?
It depends on the type of debts you owe. Certain debts cannot be discharged in bankruptcy; you will continue to owe them just as if you had never filed for bankruptcy. These debts include back child support, alimony, and certain kinds of tax debts. Student loans will not be discharged unless you can show that repaying the debt would be an undue burden -- and this is a very tough standard to meet. And other types of debts might not be discharged if a creditor convinces the court that the debt should survive your bankruptcy.
For more information, see What Bankruptcy Can and Cannot Do.
What property might I lose if I file for bankruptcy?
You lose no property in Chapter 13, because you fund your repayment plan through your income. In Chapter 7, you select property you are eligible to keep from either a list of state exemptions or exemptions provided in the federal Bankruptcy Code.
Although state exemption laws differ, they typically allow you to keep these types of property:
- Equity in your home, called a homestead exemption. Under the Bankruptcy Code, you can exempt up to $17,425 of equity. Some states have no homestead exemption; others allow debtors to protect all or most of the equity in their home.
- Insurance. You usually get to keep the cash value of your policies.
- Retirement plans. Pensions which qualify under the Employee Retirement Income Security Act (ERISA) are fully protected in bankruptcy. So are many other retirement benefits; often, however, IRAs and Keoghs are not.
- Personal property. You'll be able to keep most household goods, furniture, furnishings, clothing (other than furs), appliances, books and musical instruments. You may be able to keep jewelry only worth up to $1,000 or so. Most states let you keep a vehicle with more than $2,400 of equity. And many states give you a "wild card" amount of money -- often $1,000 or more -- that you can apply toward any property.
- Public benefits. All public benefits, such as welfare, Social Security, and unemployment insurance, are fully protected.
- Tools used on your job. You'll probably be able to keep up to a few thousand dollars worth of the tools used in your trade or profession.
- Wages. In most states, you can protect at least 75% of wages that you have earned but not yet received.