esm7i What would life be like after personal bankruptcy
When it comes to personal debt, many consumers have heard bankruptcy referred to as the “nuclear choice” or “option of last recourse” by others. Consumers fear bankruptcy because of such associations and several well-known radio personalities who preach the importance of avoiding bankruptcy at any cost. But bankruptcy does not mean eternal financial ruin for those who file. Our research and experience with bankruptcy filers show many different ways to recover from bankruptcy.
If you file personal bankruptcy as an individual or a couple with your spouse, it does not mean you will never be able to buy a house, a car or build wealth. Former filers may even be able to qualify for mortgages with reasonable rates in just two or three short years.
You should do two things if you’ve heard you can’t keep your house or never buy another home if you declare bankruptcy. Speak with an attorney who is a consumer bankruptcy specialist. Bankruptcy is a complex financial decision that can have long-lasting consequences. You need a professional on your side. Second, keep reading below.
We don’t believe that bankruptcy is the right thing for everyone. We also don’t think consumers should put in extra effort to avoid bankruptcy for years or decades. In addition to protecting consumers from losing assets they have worked hard to accumulate over the years, bankruptcy law makes many entrepreneurs in our country feel more secure when taking risks to build up their businesses. Ironically, this is the same group of so-called experts that warn people against filing for bankruptcy.
Please remember that the information provided here is only intended to be used as a guide, and you should consult a qualified legal professional for personal advice.
Protecting Your Assets During Bankruptcy
Consumers are often told that they’ll “lose everything” except “the shirt off their back” if they file bankruptcy. This exaggeration creates excessive fear and false expectations about the process and the consequences of filing personal bankruptcy in the US. Of course, consumers should not file for bankruptcy for trivial or frivolous reasons. However, they should also not dismiss bankruptcy out of hand because they heard incorrect information from their friends, TV shows, and movies.
How to Keep Your home after bankruptcy
Consumers can keep their homes even if they file for bankruptcy. Unsurprisingly, it depends on which chapter they choose, if they’re current with their mortgage payments, and how much equity the home has. To keep your house in Chapter 7, your mortgage must be paid on time, and your equity cannot exceed your bankruptcy exemption. If you have more equity in your home than your bankruptcy exemption allows, the trustee appointed by the court will sell your house and use the proceeds to pay your creditors.
You can keep your house in a Chapter 13 bankruptcy by setting up a payment schedule. If you have more equity than the bankruptcy exemption in your state, you’ll have to pay your regular monthly home payments and make additional payments towards equity. If your home’s value has risen by $150,000 in the last five years, but your bankruptcy exemption is only $30,000, then you must pay the $120,000 remaining equity on your home within the repayment period (usually 3 to 5 years). This is an additional $2,000 to $3333 per month. This payment can often double or triple your mortgage payment. You will unlikely be able to keep up with your Chapter 13 payments.
In some states, such as Texas, where bankruptcy laws are very lax, you can keep your house, no matter its value, if it’s on less than 10 acres in the city or less than 100 acres in the countryside. This is if you are filing as an individual. You can double your acreage exemption if you are married or have kids. Theoretically, you could have an 18-million-dollar home in Dallas on 10 acres.
Keeping Your Retirement Portfolio After Bankruptcy
Normal circumstances provide strong protections against creditors for your 401k and other employer-sponsored plans and Individual Retirement Accounts, including Traditional, Roth, and SEP IRAs. Traditional and Roth IRAs have a $1M limit on their protection, but the other accounts are protected in most cases.
How to Keep Family Heirlooms
You may keep your jewelry, musical instruments, china sets, or any other treasures you have accumulated over the years if they fall under your state’s exemption for personal property (or federal exemptions). State exemptions vary greatly from one another and the federal baseline list. For example, Idaho’s exemption is only $1,000 in Idaho, while the federal exemption of $1,700 applies to jewelry. Texas law may exempt jewelry up to $25,000.
Keep Your Car or Truck
Every state’s bankruptcy law recognizes that a car is essential to a person’s daily life and, more importantly, to get to and from work. The location of your bankruptcy filing and the amount of equity in the car can be a major factor in determining if you can keep the current vehicle.
You can keep your vehicle if you have less than $4,000 in equity (the difference between the fair market value of the car and what you owe). Many states allow you to keep a car with up to $10,000 in equity. States with more liberal bankruptcy laws, like Texas (the “land of the $10,000 millionaire”), allow you to retain any vehicle you want so long as it is registered, or you can rely on a licensed driver.
This means that someone in Idaho with a two-door Chevy Spark valued at $10,500 but owns nothing may not be allowed to keep it. In contrast, a person in Texas who owns an upscale Land Rover Discovery valued at $60,000., can drive to the federal courthouse in luxury.
