Will I lose everything if I file bankruptcy?


Will I lose everything if I file bankruptcy?

Absolutely not. Many people have the misconception that when they file bankruptcy, they are going to lose their house or car. This misconception comes from propaganda put out in the media by the credit card companies. Many people don't understand what bankruptcy is really all about.

When you file bankruptcy, you provide an inventory of your house (if you own one), car, bank accounts, and other property to the court appointed administrator. The administrator reviews this list and may ask you some questions about your various items of property. The court appointed administrator, or trustee, has no power to take property from you if the equity, or value, you own in that property is less than a certain amount. And the fact of the matter is, the vast majority of people who file bankruptcy have little or no equity in their property above and beyond what they are allowed to protect and keep under state law and bankruptcy law.

Here's an example. Let's say you have a house and owe $100,000 on the mortgage. Real property values are down to historic lows, so your property was recently valued by the tax assessor as well as Zillow.com at only $80,000. Because you owe more than the house is worth, you have zero equity. You are what they call "under water" on your mortgage.

Because you have zero equity, the bankruptcy court and the trustee will have absolutely no power or interest in taking your home.

Let's say you had some equity, like $10,000. That would assume that the house is worth $100,000 and you owe a total of $90,000.

Even in this case, the court will still not be able to touch your house in any way.

Why, you ask? The reason is that Missouri law allows you to exempt up to $15,000 in home equity in your bankruptcy case. You would have to have significantly more than $15,000 in equity in order to be at any risk of losing your property due to the bankruptcy.

This is why it is so important to hire a qualified bankruptcy attorney who focuses his practice almost entirely on bankruptcy, someone who has handled hundreds of cases under Chapter 7 and Chapter 13 and knows the intricacies of federal bankruptcy law and the Missouri laws that are involved in bankruptcy. A qualified attorney will know how to properly describe and evaluate your property on the bankruptcy petition. He will explain how the law really works and why as long as you carefully evaluate what you own, you have absolutely nothing to worry about and will lose nothing by filing bankruptcy.

There are other exemptions similar to the $15,000 home equity exemption which people enjoy the benefit of. There are exemptions to cover cars, bank accounts, furniture, retirement accounts, and many other types of property people typically own. This is why the overwhelming majority of people who file chapter 7 face little to no risk that they will have to give up anything at all of their property. They are much more at risk of losing their house due to not paying the mortgage than the process of filing the bankruptcy.

If you do own property which is valued such that it is more than you are allowed to keep under the Missouri exemptions, then what I recommend people do is file Chapter 13 bankruptcy. With chapter 13 there is no risk whatsoever that the court and trustee will force you to turn over property you own when the case is filed. If you have a little too much equity in your home, for example, then you can simply file your case as a Chapter 13, and all you have to do is propose to pay back a little bit more to your creditors to make up for having that equity.

Most people who file chapter 13 do pay a certain percentage back to their credit cards, medical bills, and other miscellaneous unsecured debts. However, the percentage is usually very small, and people only have pay back a fraction of the total, at 0% interest. As long as they faithfully pay off that portion of their debt through the plan, the judge will discharge, or eliminate, the other 70%, 80%, or 90% of their debt! Compare this to the impossible task of paying back tens of thousands at the 29% interest that most credit card companies charge. The advantages of chapter 13 are tremendous.

Chapter 13 also offers other benefits, such as lowering your car payments. When you file chapter 13 the court forces your car lender to give you a break and lower the interest rate, stretch out the repayment period, and in some cases even lower the principal! This is why in many cases, the Chapter 13 plan payment my clients pay is actually equal to or less than their current car payment! And the beauty is that this payment will pay off their car, as well as discharge the rest of their debt, in just 3-5 years. They end up paying less in interest on their cars, and eliminating 90% or more of their credit card debt at the same time, all with very affordable monthly payments, where all these debts are rolled into one single convenient payment to the court. The court administrator handles making sure that all the various creditors get their fair share, whatever that may be.