What happens to your property when you file bankruptcy?

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When filing for bankruptcy, one of the major concerns individuals have is what will happen to their property. Bankruptcy is a legal process that helps individuals or businesses eliminate or repay their debts when they are unable to meet their financial obligations. The fate of one’s property depends on the type of bankruptcy filed and the specific laws of the jurisdiction. In this article, we will explore what happens to your property when you file bankruptcy and the different scenarios that may arise.

Chapter 7 Bankruptcy

Asset Liquidation: In Chapter 7 bankruptcy, also known as liquidation bankruptcy, a trustee is appointed to oversee the process. The trustee’s role is to identify and sell non-exempt assets to repay creditors. Non-exempt assets may include luxury items, valuable collections, or second homes. However, exemptions vary by state, and certain assets may be protected from liquidation. Exempt assets typically include necessities like clothing, furniture, and a primary residence up to a certain value.

Automatic Stay: Filing for bankruptcy triggers an automatic stay, which halts most collection actions, including foreclosure and repossession. This means that if you are facing foreclosure, filing for bankruptcy can temporarily stop the process, giving you time to reorganize your finances or negotiate with your creditors.

Chapter 13 Bankruptcy

Repayment Plan: Chapter 13 bankruptcy, also known as reorganization bankruptcy, allows individuals with a regular income to create a repayment plan to pay off their debts over a period of three to five years. Unlike Chapter 7, Chapter 13 bankruptcy does not involve liquidation of assets. Instead, individuals can keep their property and make regular payments to their creditors through the court-appointed trustee.

Equity in Property: In Chapter 13 bankruptcy, the value of your property and the equity you have in it play a significant role. Equity is the difference between the fair market value of the property and the amount owed on any mortgages or liens. If you have significant equity in your property, you may be required to pay more to your unsecured creditors through your repayment plan.

Exemptions and Homestead Laws

State Exemptions: Each state has its own set of exemptions that determine which assets are protected from liquidation in bankruptcy. These exemptions can vary widely, so it’s essential to understand the specific laws in your state. Some states have generous exemptions that protect a significant amount of property, while others may have more limited protection.

Homestead Exemption: Many states have a homestead exemption that protects a certain amount of equity in your primary residence. This exemption allows you to keep your home even if you file for bankruptcy. The amount of the homestead exemption varies by state, so it’s crucial to understand the specific rules in your jurisdiction.


When filing for bankruptcy, the fate of your property depends on the type of bankruptcy filed, the exemptions available in your state, and the equity you have in your assets. In Chapter 7 bankruptcy, non-exempt assets may be liquidated to repay creditors, while Chapter 13 bankruptcy allows individuals to keep their property and create a repayment plan. Understanding the specific laws and exemptions in your jurisdiction is crucial to determine what will happen to your property when you file bankruptcy.


– Nolo: www.nolo.com/legal-encyclopedia/chapter-7-bankruptcy-liquidation-32229.html
– Investopedia: www.investopedia.com/terms/c/chapter13.asp
– United States Courts: www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics