If you're thinking about filing for bankruptcy, there's a good chance that you're worried about losing your assets when you file. You're probably afraid that by filing for bankruptcy, you'll be left without a home, car, or money. This is a common misconception, but it's important to understand that it’s not true!
Bankruptcy is designed to give you a fresh start, but you're going to be left with nothing after your case. Getting a fresh start isn't just about wiping out some of your debts. It's also about protecting some of the assets you currently have. If you're considering selling your assets before filing for bankruptcy in order to get extra money, you need to understand that it's not always so simple. Here are some things you need to know before selling your assets before filing for bankruptcy:
Type of Property: Exempt vs. Nonexempt
- Exempt property: When you file for bankruptcy, you are allowed to keep some of your property, and this is known as exempt property. Exempt property cannot be taken from you by creditors to satisfy a judgment against you. What property is considered exempt varies by state and federal law. Some examples of exempt property include your primary place of residence, limited equity in a vehicle, household items up to a certain value, and retirement accounts.
- Non-exempt property: Nonexempt property is all property that is not subject to an exemption. In a Chapter 7 bankruptcy, your bankruptcy trustee can sell nonexempt property and use the proceeds to pay back your creditors.
Selling Exempt vs. Nonexempt Property Prior to Bankruptcy:
For the most part, selling an exempt property before filing for bankruptcy is not a problem, as long as you receive fair market value for it. The reason it's okay to sell an exempt property is that your bankruptcy trustee isn't able to liquidate this property during bankruptcy to pay back your creditors. However, if you really want to keep this property, there's no real reason to sell it or transfer it before filing for bankruptcy – because an exempt property is protected in bankruptcy.
If you know that you're going to file for bankruptcy, selling a nonexempt property to maximize your exemptions is often referred to as "pre-bankruptcy planning," and it's incredibly dangerous. Bankruptcy laws discourage doing this, especially when it's done with the intent to hinder, delay, or defraud your creditors.
Bankruptcy can't bring back what's already been lost but…
Although bankruptcy does provide some protection against your assets, it cannot bring back what has already been lost. If you choose to sell or transfer some of your assets before filing for bankruptcy, it's important to understand that bankruptcy cannot protect those assets any longer. If you're thinking about selling or transferring some of your assets, you may be better off filing for bankruptcy sooner rather than later.
Selling some of your assets before filing for bankruptcy can be dangerous if it's not done correctly. If you're considering selling some of your assets before filing for bankruptcy, the best thing you can do is to meet with an experienced bankruptcy attorney and discuss what options are available to you.
